In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
An ETF Ready for the Rally
10/27/2011 9:47 am EST
Recent market action doesn’t get us any closer to a definitive uptrend or downtrend, but there are still options for investors who remain diligent, writes Doug Fabian of the Making Money Alert.
Last week, the market returned to its volatile ways, as stocks oscillated between bull and bear through the first four trading sessions. Then we saw some big buying nearly across the board on Friday.
Traders mostly concentrated on the plethora of earnings reports, which included an uncharacteristic earnings miss from tech giant Apple (AAPL). The selling in the bellwether tech helped keep the Nasdaq Composite in negative territory for the week. Other big-cap bellwethers such as Intel (INTC) and McDonald’s (MCD) easily bested expectations, and that helped lift stocks.
Now that earnings season is in full swing, it might be easy to take our eyes off the ball regarding the fundamental problems facing the economy. These problems are omnipresent, and three of the biggest are
- the European debt crisis [even with the deal last night, we’re closer to the beginning of this crisis than the end—Editor];
- the fractured political climate in the US that’s keeping our government from getting anything accomplished;
- and the economic slowdown in China.
Each of these issues has the potential to pull stocks down on their own, but together they represent a dangerous trifecta that could bring the bears out of the den.
Despite the presence of these aforementioned negatives, stocks have rallied enough to put us into “Alert Mode” with the Fabian Plan. That means we are close to receiving a new buy signal in stocks.
As of this writing, the Domestic Fund Composite is 2.41% below its 39-week moving average, so if stocks move just a little higher from here we may indeed get a new buy signal.
NEXT: A Safe Choice Now|pagebreak|
A Safe Choice Now
When the nightly news reports stock market news, you generally are provided with prices for the S&P 500, the Dow Jones Industrial Index and the Nasdaq Composite. But as savvy investors, we know there are more indexes than the big three.
In fact, many professional traders and investors focus their attention on the Russell family of indexes more so than the S&P or the Dow.
The Russell indexes initially were created to better track the performance of investment managers, which brought about the Russell 3000 Index. This index is divided into smaller subsets, such as the Russell 1000, which is the index that is tracked by the iShares Russell 1000 Value Index Fund (IWD).
The iShares Russell 1000 Value Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the large-capitalization value sector of the US equity market, as represented by the Russell 1000 Value Index. The index represents approximately 50% of the total market capitalization of the Russell 1000 Index.
With the market in turmoil, it has beaten down all of the indexes to attractive entry points. In fact, many of the technical indicators for IWD are signaling a very bullish outlook. Average volume rose more than 5% in the past week. IWD has crossed above its ten-day and 50-day simple moving averages and is moving upwards.
Currently trading at around $62, IWD is in the middle of its 52-week trading range. During that time frame, IWD has recorded a low of $53.44 and a high of $70.88. At its current price point, with all the indicators showing bullish signals, IWD could be a good ETF to consider buying.
The Top Ten holdings for IWD, as of October 18, are:
- Chevron (CVX) 3.12%
- General Electric (GE) 2.84%
- AT&T (T) 2.77%
- Procter & Gamble (PG) 2.71%
- Pfizer (PFE) 2.40%
- Johnson & Johnson (JNJ) 2.25%
- Berkshire Hathaway Class B (BRK.B) 2.10%
- JPMorgan Chase (JPM) 2.09%
- Intel (INTC) 1.99%
- Wells Fargo (WFC) 1.89%.
The index currently has 653 different holdings with an average market cap of $66.09 billion. The entire index has a market cap of $8.12 trillion. Indeed, IWD is highly liquid, and about as well diversified as any ETF that tracks an index.
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