15
Apr
2013

ETF Periscope: Gold Gets Smacked Down as Wall Street Continues to Soar

“Success is not final, failure is not fatal: it is the courage to continue that counts.” -- Winston Churchill

For the moment, investors continue to see any signs of a sharp market drop as a clear buying opportunity, rather than as a time to panic and exit the market.

In other words, greed currently trumps fear on Wall Street.

Is this a perfect time for a contrarian play or what?

At the moment, the best answer probably falls into the “or what” category, though the slew of this week’s upcoming Q1 earnings reports from multiple key players such as Coca-Cola (KO), American Express (AXP), International Business Machines (IBM), Microsoft (MSFT), Google (GOOG), Intel (INTC) and Yahoo (YHOO) will go a long way towards addressing the question of whether the current full-bodied Bull charge can continue to be sustained.

Expect to see earnings results hit expectations in the main, due at least in part to the fact that corporate America has, for the last several years, generally tightened operations across the board, including hiring less, decreasing R&D, hoarding cash, and simply clamping down on any aspects of business that would limit the likelihood of the bottom line turning to red.

Whether this short-term mentality proves long-term smart remains to be seen. With overall limitations on new hires, lack of expansion, and corporate infrastructure development having been the watchwords of many corporations since the crash of ‘08, the belt-tightening may end up hitting the U.S. consumer-based economy by keeping unemployment numbers high and consumer sentiment low, ultimately relegating Main Street discretionary spending towards the recessionary end of the spectrum.

What is interesting is that Wall Street seems unconcerned by the macroeconomic picture, shrugging off potentially destabilizing events such as North Korea’s irrationality, ripple effects from out of Eurozone-member Cyprus, and currency-war implications emanating from the hot printing presses of Japan.

Hard for investors to feel bad during an uptrend, unless, of course, you are a Bear moaning and groaning atop a mountain of short positions. Until, that is, one or more of the previously referenced factors moves from the current low level of concern to a point of high worry.

Whether or not the fundamentals of the market really warrant the current chart-topping index highs remains to be seen. It’s always worth keeping in mind the often-repeated refrain of legendary economist John Maynard Keynes that “the market can remain irrational longer than you can remain solvent.”

This is particularly true at the moment if you happen to be a gold bug.

If you fall into that camp, it would be understandable if you felt somewhat squished, as last week was undeniably brutal. GLD, the SPDR Gold Trust ETF, fell over 6%, as last week’s general flight from the precious metal was not only reflected, but magnified in the ETF.

Technical indicators now point to a Bear market in the shiny metal, and whether or not that status continues will hinge to a large degree on whether investors view the precipitous drop as a buying opportunity or a moment of capitulation, potentially slamming the metal back to 2011 price levels.

How some of the big names in the hedge fund business handle their huge, recent losses in gold, including Greenlight Capital’s David Einhorn and Paulson & Co.’s John Paulson, will be particularly interesting to those who track the gold market.

All in all, the week should be at least one of minor revelations, especially for those still sitting on the sidelines on their cash pile, as they decide if they have missed the current uptrend that has leaned so heavily on the largess of the Fed and to a lessor degree, the Bank of Japan, or if there still is room left on the current edition of the Wall Street bandwagon.

What the Periscope Sees

The Sabrient SectorCast ETF Rankings rate each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score and are revised on a weekly basis. The Technology Sector continues atop the SectorCast leaderboard, though the sector has fallen off quite a bit in terms of its rankings. Still, it continues to beat out the second-ranked Financial Sector, even though the margin of difference between the two has decreased quite a bit over the last few weeks.

Here is the current list of some of the YTD top performing Technology Sector ETFs year-to-date, as of the second week of April:

SOXX -- iShares PHLX SOX Semiconductor Sector Index Fund, +12.97%

FDN -- First Trust Dow Jones Internet Index Fund, +11.24%

SMH -- Market Vectors Semiconductor ETF, +9.34%

FXL -- First Trust Technology AlphaDEX Fund, +9.23%

QTEC -- First Trust NASDAQ-100 Technology Sector Index Fund, +9.17%

IGV -- iShares S&P GSTI Software Index Fund, +8.03%

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results. 

ETF Periscope