Bring This ETF Six-Pack to Market Party
01/05/2011 4:03 pm EST
As growth speeds up, technically strong proxies for the Nasdaq, metals
and foodstuffs should continue to outperform, writes Sam
Collins, chief technical analyst at InvestorPlace
With the danger of European debt contagion, increasing tensions in Korea, concerns of inflation in China, new investigations into insider trading violations, more regulatory pressure on financial services, and a Congress that is struggling to come up with a budget and avoid a government shutdown, it is amazing that the stock market has set a new two-year high. Against the backdrop of unfavorable daily headlines are the recovering US and world economies, and a Fed that continues to pump new money into the equity markets.
If the S&P 500 continues to hold above the support line at 1,174, the likelihood of a solid breakout early in the new year is very high. But some sectors are likely to fare better than others, and the best way for investors to play sector strength is through exchange-traded funds. So I have put together a list of the ETFs to buy that are showing technical strength, giving them greater odds of continuing higher in 2011.
PowerShares QQQ Trust ETF (Nasdaq: QQQQ)
Known fondly as "the Qs," this ETF has generally tracked the weekly performance of the Nasdaq-100 index, which includes all non-financial stocks in the Nasdasq. If the Nasdaq hits my 12-month target of 3,700, investors should achieve a handsome return from this volatile performer.
PowerShares DB Agriculture Fund (NYSEArca: DBA)
This ETF seeks to track the price and performance of the Deutsche Bank Liquid Commodity Index. Food shortages and higher prices for commodities like wheat, corn, soybeans and sugar are being forecast by economists worldwide. And the recent move by China to raise interest rates is evidence that the country's central planners are concerned about possible inflation in food prices that could cripple their economy. An agriculture ETF like DBA should be part of any well diversified portfolio geared toward 2011's economy. [Ian Wyatt recently suggested a different agriculture ETF. The DBA is one of three agriculture proxies Michael Brush expects to rise on the back of higher food prices-Editor.]
PowerShares DB Base Metals ETF (NYSEArca: DBB)
Commodities should generally outperform the market in 2011, with industrial-use metals leading the sector. Since this ETF is composed of futures contracts on some of the most widely used metals, such as aluminum, zinc, and copper, it is a strong candidate for a powerful move north in 2011
ProShares Short 20+ Year Treasury ETF (NYSEArca: TBF)
This ETF moves inverse to the daily performance of the Barclays Capital 20+ Year US Treasury Bond Index. The trend for Treasury prices is sharply down, supported by Federal Reserve pressure to increase interest rates. Since history has shown that it usually behooves investors not to fight the Fed, this appears to be an investment that is in line with their goal to increase interest rates. [For more on the TBF, see this recent Doug Fabian excerpt-Editor.]
Guggenheim Solar ETF (NYSEArca: TAN)
This ETF seeks to replicate the performance of the MAC Global Solar Energy Index. Technically, the ETF is trading below its 200-day moving average at $7.73, but only by a small amount. [Shares recently changed hands at $7.44-Editor.] For those who wish to bottom fish, this may be a great long-term investment. The sun appears to be breaking through for this industry, and by investing in a fund with a global perspective, investors have the additional benefit of diversification into emerging markets. It's rumored that China is considering price supports for solar, and if that materializes next year, this ETF could break into full sunlight.
iShares Dow Jones US Select Medical Devices Index ETF (NYSEArca: IHI)
The ETF, which seeks to mirror the performance of the Dow Jones US Select Medical Equipment Index, could benefit from the recent challenges to the Obama health care program. In November, IHI broke above its 200-day moving average at $55 and jumped to $59 in two weeks. Heavy upside volume has accompanied the advance. A break above the November 2008 high of $65 could vault the issue to $80-$90. [Shares traded at $59.17 recently-Editor.]