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Sector ETFs: Relative Strength Darlings In Technology and Natural Resources

11 January 2011 at 3:49 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

The first round of earnings reports gave investors plenty of reasons to smile¬†— from Tiffany’s outlook to¬†Alcoa’s expectation-beater to KB Home’s profit. And yet, in spite of¬†the¬†S&P 500 visiting¬†the 1276-1278 level on virtually¬†every¬†day of the New Year,¬†resistance has kept stocks in check.

Perhaps it’s not enough that Japan has joined China in offering to buy¬†European debt. Or maybe¬†it’s “curtains”¬†for¬†the U.S. housing market, now that¬†mortgage rates have nowhere to go but up. Proposals to sack the mortgage interest deduction for $500,000+ won’t help either.

Indeed, you should expect the bear to claw its way into our collective subconscious more than a few times in 2011. However, those challenges (emerging country inflation, developed world deficits, etc.) are unlikely to be a death blow for the bull.

It follows that recent changes to relative strength percentile rank are worth watching. You might acquire shooting stars on pullbacks or sell falling stars at the top of trading ranges.

Here a several Sector ETFs that would intrigue me on a wave of selling activity:

Relative Strength Darlings in 2011      
        Percentile Rank 10/15   Percentile Rank 1/11
SPDR Oil Gas Equipment Serv (XES) 40.7%   90.8%
iShares S&P Networking (IGN)   39.8%   91.7%
First Trust Revere Natural Gas (FCG) 15.3%   75.3%


Prior to the mid-term elections, Oil Services ETFs struggled relative to most stock AND bond ETFs. Drilling restrictions, cap-n-trade legislation fears as well as fallout litigation related to the BP spill dogged the sub-segment. By mid-October, though, the congressional outcome was already appearing on Wall Street.

Today,¬†a pro-business House of Representatives helps investors¬†see the potential of offshore drilling in places other than the Gulf of¬†Mexico; investors can¬†see the need for seabed engineering/construction as well as the potential for mergers within the industry. And the best way to invest in it all…¬† the largest, diversified oil services companies in SPDR Oil Gas Services (XES) or iShares Oil Gas Equipment and Services (IEZ).

There’s a similar change in sentiment with respect to other natural resources companies, such as those that explore for, acquire and store natural gas. As Tom Lydon of ETF¬†Trends recently pointed out,¬†speculators have been raising¬†their net-long positions on¬†gas contracts. The bullishness in the beaten-down commodity¬†may be a function of rising demand and falling stockpiles.

Crude oil prices are also rising. This may¬†assist natural gas gain fans as¬†a transition fuel — one that¬†is¬†inherently¬†cleaner and easier to access¬†domestically.¬†Keep an eye on First Trust Natural Gas (FCG).

The iShares S&P Technology-Multimedia Networking Index Fund (IGN) struggled through the summertime stock slump of 2010. John Chambers of Cisco seemed almost belligerent about the U.S. economy’s prospects.

Nevertheless,¬†almost nothing¬†on the Internet occurs without the likes of Cisco, Juniper and/or Qualcomm.¬†With or without “neutrality,” streaming content as well as financial transactions¬†have tremendous growth potential. Qualcomm’s recent acquisition of Atheros Communications¬†only confirms¬†the industry’s direction.

You can listen to the¬†ETF Expert Radio¬†Show¬†‚ÄúLIVE‚ÄĚ,¬†via podcast or on your iPod.¬†You can review more ETF Expert features here.

Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFseasier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

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