ETF Stocks Weekly Sector Performance Scorecard

Momentum investing is one of the most popular strategies employed on Wall Street. The theory goes a little something like this; stocks that outperform tend to continue their out-performance. It's kind of the street's version of Newton's first law of motion: “An object at rest stays at rest and an object in motion (momentum stock) stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force (ETF Stocks think most traders qualify as unbalanced.)” While picking individual momentum stocks might be used to justify millionaire hedge-fund managers' incomes, a study published in The Journal of Finance suggests the average investor can do better by focusing on industries rather than stocks. In the Journal of Finance piece, “Do Industries Explain Momentum?”, researchers Tobias J. Moskowitz and Mark Grinblatt found that “Once returns are adjusted for industry effects, momentum profits from individual equities are significantly weaker and, for the most part, are statistically insignificant.” In other words, being in the right industry is more important than being in the right stock and accounts for almost all of the performance. And sector investing actually outperforms individual stocks in the short-term, “Unlike individual stock momentum, industry momentum is strongest in the short-term (at the one-month horizon) and then, like individual stock momentum, tends to dissipate after 12 months, eventually reversing at long horizons. Thus, the signs of the short-term (less than one month) performances of the industry and individual stock momentum strategies are completely opposite, yet the signs of their intermediate and long-term performances are identical.” That's exactly why every week ETF stocks reviews and analyzes each Dow Jones industry chart. We are looking for the sectors that we breakdown into four categories: • Mature Bull • Emerging Bull • Emerging Bear • Mature Bear This process helps us (and you) identify the sectors and exchange traded funds that are buy and sell candidates. EMERGING BULL: industries with positive technical analysis traits that are in the early stages, indicating possible above average returns in the near-term: • Beverages • Defense • Electricity • Multiutilities • Non-Durable Household Products • Utilities • Distributers and Vintners MATURE BULL: industries that have outperformed and their charts suggest the above average returns could continue: • Biotech • Personal Products • Food and Drug • Food and Beverages • Fixed Telecom • Property & Casualty Insurance • Business Support • Personal Goods • Pharmaceuticals • Drug Retail • Railroad • Restaurants and Bars • Soft Drinks • Food Producers • Healthcare • Insurance Brokers • Telecommunications • Toys • Gas & Water Utilities • Water ETF Stocks would consider taking some dollars from the following industries and putting them into some of the sectors mentioned above. MATURE BEAR: industries that have under-performed and based on their current chart patterns and could continue to lag: • Autos • Business Training • Basic Resources • Telecom Equipment • Platinum & Precious Metals • Home Improvement • Technology • Tech Hardware EMERGING BEAR: industries that have fresh negative technical analysis set ups and could have subpar performance in the weeks ahead: • Electronic Equipment • Aluminum • Autos • Auto Parts • Building Materials • Gambling • Coal • Construction Materials • Electronic Components • Electrical Equipment • Industrial Machinery • Industrial Engineering • Low Cap • Real Estate • Steel • Small Cap Growth • Commercial Vehicles • Heavy Construction • Tires • Transportation • Small Cap Value ETF investors could do the obvious and pick a sector ETF from the two bull categories. PowerShares Dynamic Food & Beverage (PBJ) would cover emerging bull member beverages and mature bull industry's food, soft drinks and food producers. If the current correction and losing streak continues, an inverse ETF from either bear list could be a profitable choice if selling resumes. Since small caps show up a couple of times in the “bad columns”, an ETF like ProShares Short SmallCap600 (SBB) might warrant some consideration. SBB seeks daily investment results, before fees and expenses, which correspond to the inverse (opposite) of the daily performance of the S&P SmallCap 600. In English, when the SmallCap 600 drops 1%, SBB gains roughly 1%. Another strategy that can profit no matter if the stocks go up or down is what we call a ZERO Trade. It's real simple, buy a sector ETF that best fits either bull list and short an equal dollar amount of an ETF from the bear lists. As long as what you buy continues to outperform the shorted exchange traded fund, no matter how much the stock market goes up and/or down, you make money! How good would that feel? We certainly hope that you find our industry forecasts helpful in managing your portfolio. Of course, there are no guarantees, but it has been our experience that being in the right industries, and avoiding the wrong ones, can account for a lot of your performance.