Hot ETFs for a New Year

January has brought some quick gains to the major indexes, in spite of Friday’s sell off, as the markets try to continue their rally into 2010. 

Taking a look at some fundamental and technical indicators, it appears that for the short term, at least, this market wants to go higher. 

Chart courtesy of  stockcharts.com 

On the Point and Figure chart above we see the S&P established well above the blue Bullish Support line which indicates a strong long term uptrend and that it experienced a Triple Top Breakout on November 16, 2009.  “Buy” signals on Point and Figure charts come with single, double and triple top breakouts and the more resistance that is broken, in this case three columns, the more powerful the uptrend typically is. 

Also the Bullish Price Objective is 1295 which is an estimate of how high the S&P could go, based on Point and Figure methodology, or roughly 14% from here. 

On a fundamental basis, earnings are expected to be up more than 60% as we get deeper into earnings season with 66 S&P companies scheduled to report the week of January 18th.  Furthermore, and the VIX, the “fear indicator,” has lapsed into the teens for the first time since before the global financial crisis hit, indicating investor confidence in the durability of this uptrend. 

So while nobody has a crystal ball and nobody can say for sure how long this rally can last or when or how it might end, things look quite positive at the moment from both a technical and fundamental standpoint, in spite of Friday’s sell off. 

While the indexes have put on an impressive performance thus far, several ETFs and sectors have been even more impressive. 

(SLV) iShares Silver Trust is up +10.7% year to date while (KBE) the SPDR KBW Regional Bank Index has gained +11.9%.  Also European countries have been strong, with (EWO) the iShares MSCI Austria Index logging a +10.7% gain so far in January.  (All statistics are as of market close, Thursday, January 14, 2010) 

These developments are all very interesting to consider since rising precious metals prices typically are a bet on future inflation and a weakening dollar.  Banks appear to be coming back from the dead, and even while warnings and worries about sovereign defaults and excessive debt abound, small countries continue logging substantial gains.

It’s anybody’s guess when the party might end, but ETFs are playing an increasingly important role in global investments.  Total ETF assets have surpassed $1 Trillion which is a gain of more than 40% year over year.  More and more big players are jumping into the game with online giant Charles Schwab having recently rolled out a group of plain vanilla ETFs that come with zero online commissions.  

So we have the ongoing struggle between the bulls and the bears, “micro bull markets” like regional banks and Austria, and major players piling into the ETF world in search of more investor assets.  All in all, it’s an exciting time in the world of global finance, investment and ETFs and I’m sure we’ll see more stirring developments in the weeks and months ahead.

All the best,

John

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