Wed 26 Jul 2006
Editor’s note: Today’s report is a day early. Tomorrow we are off to Lake Powell for a family gathering. Forecasts are for temperatures approaching 110. But at least there is water to cool off. I’ll let you know how the fishing turns out.
Major market indices continue to look ugly–especially the Nasdaq. For most investors, this remains a good time to sit on the sidelines and wait for a more stable environment. For more speculative investors, there are some sectors that are gaining strength. Before I give a rundown on the sectors, I want to illustrate the overall market weakness. I’m including two charts of the Nasdaq. Both are the same, except for the period displayed.
The first is a three-year chart. The black line is the daily price activity of the Nasdaq. The gold line is a 50-day moving average. This longer chart gives a quick visual comparison of the severity of this latest correction. It has been the sharpest correction over this period and it is now entering its fourth month.
The one-year chart below gives a clearer image of the recent period. Until the Nasdaq can break back through its 50-day MA, it would be wise to assume that weakness still dominates and we should maintain defensive market positions.
While the Nasdaq and the technology issues have languished, some other sectors have done surprisingly well over the past 30 days. Some of the top sectors during that time might surprise you. Here is a list of some of the top performers:
- Latin American/Emerging Market funds
- Energy
- Utilities
- Real Estate
- Health Care
- Precious Metals
Over the past month, 42 out of about 300 Exchange Traded Funds (ETFs) have gains of 5% or greater.
| Symbol | ETF | %Gain |
| EWW | EXTRADED MSCI Mexico(iS) | 12.37% |
| ILF | EXTRADED S&P 40 Latin America(iS) | 9.33% |
| EWZ | EXTRADED MSCI Brazil(iS) | 8.64% |
| PXE | EXTRADED Dyn Energy Explor&Prodn(PowShr) | 8.49% |
| PUI | EXTRADED Dyn Utilities(PowShr) | 8.35% |
| IYE | EXTRADED DJ US Energy(iS) | 7.94% |
| FXI | EXTRADED FTSE/Xinhua China 25(iS) | 7.60% |
| EEM | EXTRADED MSCI Emerging Markets(iS) | 7.54% |
| EZA | EXTRADED MSCI South Africa(iS) | 7.53% |
| IHF | EXTRADED DJ US Health Care Provider(iS) | 7.52% |
| RWR | EXTRADED DJ Wilshire REIT(stTr) | 7.40% |
| IDU | EXTRADED DJ US Utilities(iS) | 7.40% |
| VPU | EXTRADED Vanguard Utilities(VIPER) | 7.17% |
| VDE | EXTRADED Vanguard Energy(VIPER) | 7.16% |
| ICF | EXTRADED Cohen & Steers Realty Major(iS) | 7.12% |
| XLU | EXTRADED Utilities(SPDR) | 7.11% |
| VNQ | EXTRADED Vanguard REIT(VIPER) | 7.11% |
| IXC | EXTRADED S&P Global Energy(iS) | 7.06% |
| VWO | EXTRADED Vanguard Emerging Market(VIPER) | 7.01% |
| XLE | EXTRADED Energy(SPDR) | 6.97% |
| PPH | EXTRADED Pharmaceuticals(HLDRS) | 6.78% |
| UTH | EXTRADED Utilities(HLDRS) | 6.76% |
| IYR | EXTRADED DJ US Real Estate(iS) | 6.75% |
| ADRE | EXTRADED Emerging Mrkts 50 ADR(BLDRS) | 6.69% |
| JKF | EXTRADED Morningstar Large Value(iS) | 6.66% |
| IXJ | EXTRADED S&P Global Healthcare(iS) | 6.64% |
| XLV | EXTRADED Health Care(SPDR) | 6.20% |
| IAU | EXTRADED Comex Gold Trust(iS) | 6.18% |
| SLV | EXTRADED Silver Trust(iS) | 6.18% |
| GLD | EXTRADED Gold(stTr) | 6.14% |
| PEY | EXTRADED Hi Yield Eq Div Achieve(PowShr) | 6.05% |
| FDL | EXTRADED Morningstar Div Leaders(1Trust) | 5.57% |
| IGE | EXTRADED GS Natural Resoures(iS) | 5.53% |
| VHT | EXTRADED Vanguard Health Care(VIPER) | 5.52% |
| DHS | EXTRADED High Yielding Equity(WTree) | 5.50% |
| IYH | EXTRADED DJ US Healthcare(iS) | 5.43% |
| RKH | EXTRADED Regional Bank(HLDRS) | 5.42% |
| IEO | EXTRADED DJ US Oil & Gas Exp & Prod(iS) | 5.35% |
| DTN | EXTRADED Dividend Top 100(WTree) | 5.30% |
| EWY | EXTRADED MSCI South Korea(iS) | 5.23% |
| EWP | EXTRADED MSCI Spain(iS) | 5.05% |
| DVY | EXTRADED DJ Select Dividend Index(iS) | 5.00% |
That these sectors currently lead should not be too surprising. Undoubtedly all consumers are aware of the increasing prices of oil and gasoline. That explains why energy funds and emerging market funds are at the top. Many emerging market countries are producers of natural resources like oil and precious metals. Health care and utilities tend to attract defensive money–investors and traders switch to these sectors during economic downturns.
The only real anomaly in the group is real estate, which continues to post gains in the face of dire predictions about its future. Here is a link to an article about real estate from the Christian Science Monitor: http://www.csmonitor.com/2006/0726/p01s01-usec.html
The same 30 days has produced about 20 ETFs with losses of greater than 5%. The weakest sector during that period has been technology–specifically semiconductors and internet.
What does all this mean for investors right not? Probably not a whole lot. All the positions mentioned above are quite volatile and not suitable for investor in anything but small doses. Those leading funds are certainly cable of moving down as fast as they moved up.
For the next little while, the best spot for investors will continue to be as spectators on the sidelines. Hopefully we will soon see some real stability return to the markets.