In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
Five ETFs Breaking Out Now
10/08/2010 9:00 am EST
Individual stocks are great, but using an ETF to be long or short a specific sector offers distinct advantages of diversification and access to asset classes that may be difficult to invest in otherwise. Most trading in ETFs is done within those that offer very broad exposure to large cap stocks (SPY) or small cap stocks (IWM), which can be useful, but there are other alternatives for more targeted ideas.
We get questions all the time about how to find ETFs that cover a specific industry or sector. There are several free tools out there that are better than anything you could pay for to find good ETFs, but it can take a little experimentation to get the results you are really looking for. In today's article, we have five ETFs that seem particularly interesting right now and the criteria we used to find them in the first place. You can access a version of the search we used by going to Finviz.com.
We are only considering ETFs that are both “optionable” and “shortable.” You may or may not want to short or option these ETFs but this will make sure that we avoid wasting time on ETFs with low trading volume or excessive costs. We generally consider this criteria to be a requirement when looking for individual stocks as well.
We have filtered for those ETFs that are covering asset classes in a short- and intermediate-term trend. If current market momentum holds out, we would expect these funds to continue their rally before we would expect downtrending funds to reverse.
ETFs are usually less volatile than the individual stocks that comprise their index because they are diversified. However, if you are willing to take some risk, high volatility presents interesting opportunities for higher profits. We have filtered for ETFs with a beta score that indicates the stock is more volatile than its index.
NEXT: See the Five ETFs That Meet This Criteria|pagebreak|
Wisdom Tree Brazilian Real ETF (BZF)
We usually recommend currency ETFs very selectively, but this is a very interesting play on higher yields in Brazil (the "B" in BRIC) and a stronger currency relative to the dollar.
Proshares Ultra QQQQ (QLD)
This is another example of a style of ETF that we usually don't recommend, however, a leveraged bet (if kept small) on technology looks very interesting here. Keep in mind that this ETF offers very easy access to Apple (AAPL) because it is a major holding.
iShares Sweden Index (EWD)
Sweden is neither an emerging market nor is it fully correlated to developed "Western" economies that are still struggling. This fund has recently bounced off support and looks interesting with an upside target of $31.50 in the short term.
PowerShares Clean Energy (PBW)
Clean energy is volatile to be sure, but the recent basing pattern in this stock would present a nice buy opportunity on a breakout above $10 per share.
First Trust ISE Global Copper Index (CU)
Silver and gold have gotten all the press lately, but copper has been outperforming since July. The metal should rally on demand for precious metals in general, as well as industrial demand. Metals in general are a risky bet right now, but this could be an interesting way to spread the risk across industrial and safety-driven demand.
By John Jagerson of LearningMarkets.com
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