Fear or Greed?

05/11/2009 10:00 am EST

Focus: ETFS

Jim Farrish

Founder and CIO, Jim's Notes

Jim Farrish, editor of SectorExchange.com, notes the bulls will face their own stress test as news regarding the banks and the latest job report emerge.

A repeat of last week with nine of the ten major sectors ending the week higher, and one struggling sector to watch. Technology was down 2.2% for the week after setting the pace and leading the broader NASDAQ higher. The challenge for the sector was the semiconductor space, down over 7% on the week. Regardless, the index ended up 1.2% on the week and continued the string of nine weeks to the upside. The weekly volume has been above average eight out of the nine weeks, showing the strength of this move higher.

Financials were down 2.3% on the expectations of last week's banking stress test announcement. As we all know, the news was perceived as positive and the sector led the week gaining more than 20%. The banks were up more than 30%! Regional banks added 21% on the week. Broker/dealers were high by 10.6%. The results show a bullish response to the stress test data.

Money is moving into the market and the result is more sectors breaking higher and creating a broader uptrend for the markets overall. Health care, utilities, and energy joined the positive trends moving higher. However, the market remains overbought, technically.

Commodities have joined the uptrend with a breakout this week. DBC, PowerShares Commodity Index ETF, broke above resistance at $21.30, DBA, PowerShares Agriculture ETF, broke above resistance at $26, and both are worth watching for a positive entry point.

Oil is one of the positive sub-sectors of commodities, moving above $58 per barrel this week. USO, the United States Oil Fund ETF, broke above resistance at $32.40. UNG, the United States Natural Gas ETF, spiked above the $14.45 resistance to close at $16.93, breaking the downtrend line in play near $16 as well. KOL, Market Vectors Coal ETF, continued to move higher from the break through resistance at $17.35 last week, closing at $22.85.

The Dow Jones US Steel Index is up 18% over the last two weeks. The index is currently hitting resistance at 205 and I would look for a continuation of the uptrend and an opportunity to buy.

Morgan Stanley Healthcare Payor Index (HMO) led the healthcare sector higher this week with the index breaking through resistance at the 1000 mark and gaining 11.7% on the week. Earnings were the reason why, as they topped expectations and look bullish in the short term.

The leaders remain in an uptrend, but the need for additional stimulus is the question mark from my view. The news-driven market is running out of opportunities. The greed factor is definitely in play short term, along with the fear factor of missing out on the move higher. This is pushing the broad markets with money flow continuing to be strong. I am not predicting a fall in the markets, but I am extremely cautious with my stops firmly in place.

Enter any new plays with discipline. Define your entry, exit, and target prior to putting money to work. Stay focused on your goals and not others. After all, “It's Your Money, Manage It!”

The table below has been updated to last week's moves. We update this data each night on the SectorExchange.com Web site under my blog, “Jim's Notes.”

Jim Farrish, founder and editor of Melbourne, Florida-based SectorExchange.com , writes regularly about sectors and speaks widely about investing and money management.

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