In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
Four Out-of-Favor ETFs
02/04/2014 9:00 am EST
For this review, I looked for weak and oversold market averages on monthly charts by using one of my favorite technical indicators—RSI (Relative Strength Index)—to identify what may be promising buy areas from which rallies could develop, explains Bonnie Gortler in Systems and Forecasts.
Although it was not an easy task to find market averages that are oversold on a long-term basis, because the stock market has been trending higher since 2009, I found four out-of-favor ETFs that intrigued me and could be good investment opportunities in 2014.
The iShares Silver Trust ETF (SLV), which tracks silver bullion, peaked in April 2011 at $48.35. A rally attempt, from the lows in June 2012, failed in September 2012, and was unable to gather much momentum to the upside until July of 2013. Once again, the rally failed.
SLV is best for aggressive traders, not for conservative investors, because it is very volatile. Aggressive traders could buy now if they want to take a chance that the bottom is in and don't want to wait until the downtrend is broken. I do suggest a tight stop of 5% below your purchase, just in case the final bottom is not in.
The SPDR Gold Shares ETF (GLD) tracks the price performance of the gold bullion. The monthly RSI reading is very close to its lowest monthly reading, since the ETF began in 2004. With the recent rise in GLD, so far, in January, RSI has formed a rising double bottom, a bullish charting formation.
The iShares Barclays 20-Year Treasury Bond ETF (TLT), is a long-term Treasury Bond index, with bond maturities of 20 years or more that are denominated in US dollars. When long-term interest rates fall, TLT rises.
The monthly December 2013 RSI reading was the lowest reading since 2003 when the ETF began. It appears that a bottom has been made, long-term rates have stabilized, and could move lower going forward.
The iShares MSCI Brazil Index ETF (EWZ) started in July 2000. The ETF measures the broad-based equity performance in Brazil.
EWZ has been one of the weaker emerging markets. It has been in a downward trend since the peak of May 2008, although the momentum of the decline is getting smaller.
Brazil is falling sharply with other emerging markets. When investors want to take more risk, EWZ could potentially be an area that has a large growth potential, based on the position of the monthly RSI pattern.
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