Why I Trade ETFs…
In a word… they are SIMPLE. I have followed sector rotation for many years, and with the creation of ETFs that track a majority of the investable sectors, it makes tracking ideas, opportunities and events investable without much effort. Below I show how the events, news and ideas can be put to work in ETFs. A quote from Steve Jobs says it best, “Too much time is spent saying hundreds of things quietly versus one thing loudly!” Sectors tend to speak or perform better than the broad market. That doesn’t mean we are trying to outperform the market, it simply means I would rather have my money where I can participate in the growth. If you miss our webinar on this topic tonight at 6 pm you will have a chance to view the archive posted on the home page tomorrow at JimsNotes.com.
Crude oil move higher today base on what is rumored as growing demand? There is an “expectation” that US supply will decline as demand is on the rise both domestically and globally. Throw in the protests in the Ukraine and crude oil is up 2.9% for the day? OPEC made comments relative to production cuts to keep oil prices higher as they are scheduled to meet in Vienna on Wednesday. In other words, rumors and speculation are driving the price off the recent lows. If the data on Wednesday shows or confirms the lower inventories for the week, that will confirm or add some validity short term to the story. What does it all boil down to? Oil wants to move higher and is being pushed in that direction currently. Based on the current consensus we could see prices move up quickly towards the $100 level. Still not a strong believer in the longer term picture for prices to remain high. Watch the trade in OIL, iPath Crude Oil Trust ETN if this follows through on the upside. The other benefactor will be energy stocks as well as the MLPs that are energy focused.
The build up in inventory in the auto sector sent the stocks lower today by 1.6%. In the ISM Manufacturing data on Monday was the little nugget of information that went without response until overnight analyst were not happy with the report. The inventory levels were worse than expected and of course that is likely to lead to incentives, which in turn will cut into the profit margins. Ford and GM both fell more than 3% on the day. This is a new development with auto sales and something to watch going forward. If it becomes a trend the downside in the sector will continue. Since don’t have an ETF that is focused solely on the automotive sector we would take the index and track the individual stocks for any downside plays if the trend develops.
The VIX index moved through resistance at the 14.50 level. The issues within the ISM manufacturing data rattled some analyst and that led to some selling today. Which in turn pushed the VIX index higher and now we see if it accelerates or it is a one day event. This is worth watching as the resistance has been well defined at the top of the current trading range. There will have to be more fear based selling if the index is going to spike back near the 18 level near term. Watching VXX as an opportunity or trade to participate in the volatility increase.
Alternative energy or renewable energy is being pushed harder to be put in use with each passing day. This has been an ongoing story line since oil spiked to $150 per barrel in July 2008. It has ebbed and flowed with the rise of regulations, costs, storage, and stability. There have been sectors created for wind energy (FAN), solar energy (TAN), natural gas (FCG) and other alternative energy sources. As the opportunities grow, so do the stocks. The growth in the solar ETF has double this year, as the opportunities created by China stepping out the business with government subsidies, opening the way to more companies being able to compete. This is one sector that remains in an uptrend and offers long term growth opportunities.
The goal is to define what is working in the markets every day… ETFs make that an easier task to perform as well as making the idea investable. There plenty of issues an investor has to sift through before taking this approach, but the opportunities are only limited by your imagination or market opportunities. Each night we update what is happening across the market landscape with the use of ETFs and the opportunities we find of interest. Sign up for our Free nightly email to this research published each evening. Every day we also publish our daily trading notes for specific opportunities heading into the trading day. Join now… it’s free.