Unless you’ve been on Mars for the past year, you know that we’ve been in a tough stock market and that the bear is biting many investors’ portfolio.
But as the old saying goes, “there’s always a bull market somewhere,” and as we study the “sub market” every month, we find ETFs and sectors that consistently outperform the benchmark indexes.
The ETF of the Month for August, however, is something of a surprise and so let’s take a look at “Bear Market Mysteries.”
In spite of all the doom and gloom in the financial press, the ETF of the Month for August is ITB, ishares Home Construction Index, up a respectable +5.2% while the S&P 500 sank -3.4% for the month and the Dow -3.7%.
How could this be, with all the negative news surrounding real estate and the financial sector in general?
There are several explanations, but the most likely fundamental explanation is the forward looking nature of the market and a slow turn in the fortunes of the nation’s biggest homebuilders. Sales seem to be slowly picking up as the foreclosure overhang is worked through and, even in the hyper-depressed Florida market, prices seem to be stabilizing.
On a technical basis, a look at the chart shows us:
Overall, ITB made a low in mid July and then has been steadily rising since then. Particularly impressive is the MACD trend as shown on the bottom of the chart which still has the histogram on an upwards trend in spite of this week’s sell off.
But also note that the blue 50 day moving average line that’s below the red 200 day moving average line, which most technicians would tell you is a negative sign for the trend of the stock.
So, ITB’s performance is something of a mystery but one that can still be exploited by active investors. In my work at Wall Street Sector Selector, we recently closed a trade in a related ETF, IAT, the ishares Regional Bank Index, for a profit of +4.7% in just less than a month and so there are always opportunities to be found even in the most punishing bear markets.
For those investors who think that the Home Builder Sector will continue improving, here are the details on ITB:
Tracks the Dow Jones U.S. Select Home Construction Index
$330 million in assets.
0.48% management fee
500,000 daily volume
YTD performance -8.7% vs. the S7P 500 -14.5%
Top holdings: Toll Brothers, NVR, Inc. Pulte Homes, Lennar Homes
So, the million dollar question is whether or not ITB can continue its winning ways, particularly after Thursday’s sell off. No one can say for sure, and that’s what makes bear markets so painful for most investors. Solving bear market mysteries is a tough challenge but a potentially profitable endeavor for those investors who can successfully uncover the bear’s secrets.
John Nyaradi is Publisher of Wall Street Sector Selector, an online newsletter specializing in sector rotation trading using Exchange Traded Funds.
Disclaimer:
All material herein is believed to be correct but its accuracy is not guaranteed. This article represents solely the opinions of John Nyaradi and readers are encouraged to consult their investment advisors prior to making any investment decisions. All information herein is for general informational purposes only. The information is of an impersonal nature and should not be construed as individualized advice or investment recommendations. There is risk of loss in all trading and readers are encouraged to read the full disclosure statement at http://www.wallstreetsectorselector.com/disclosure.html. None of the information in this article is intended to be investment advice or any kind or offer or solicitation to buy, sell or otherwise invest in any fund, company or security. Nothing herein represents a recommendation, claim, promise, guarantee or warranty regarding the suitability or profitability of any investment.
