Global equity markets started the new year with their own
fireworks show although the overall effect felt like less “bang” and more
“KABOOM” as the S&P 500 recorded its worst opening week as credit markets begin
to move away from the zero bound. Most
eyes were locked on the debacle in Shanghai and even as Chinese stocks closed
the day in positive territory, U.S. equities opened in the green only to close
deeply in the red and close to the lows of the day as renewed stability in
China wasn’t enough to avert profit taking here at home. With over $2.5 billion yanked from the SPDR
S&P 500 ETF last week, it’s not surprising that our ETFG Quant Movers List
has a distinctly defensive flavor but even amid the profit taking on Friday a
small trend emerged that could signal that 2016 won’t be so cut and dried.
The first four trading days of the year had a distinct
“baby and the bathwater” vibe going as investors rushed to clear their portfolios
of anything that was positive in 2015 and run back to their old defensive
favorites like the gold miners and utility funds. The permabears and gold bugs are probably
still doing a victory lap after the strong outperformance by a number of gold
funds last week including the Market Vectors Gold Miners Fund (GDX) which was
up 5.83% while SPY languished with a 5.86% loss. And while that certainly wasn’t the biggest
point spread the two funds have ever recorded, it seemed to lend credence to
the notion that the miners have returned to their old role as a place of
“safety” when the broader equity market is suffering and to the steady
accumulation gold mining funds have seen since the first bout of equity
turbulence last summer.
Bigger (in terms of average market capitalization) was
definitely better at least performance wise, but a number of investors were
clearly trying to get ahead of a trend by going small with the microcap Global
X Gold Explorers Fund (GLDX) seeing it’s behavioral score rise over 43% last
week on strong price momentum. Utility
funds have benefited from the same trend although not to the same degree as
investors have been hesitant to overly commit to an already richly priced and
interest rate sensitive sector. The
Vanguard Utilities VIPERS Fund (VPU) had the strongest increase in its weekly
behavioral score with an almost 44% gain although ranking our coverage universe
based just on momentum would pretty much just show every utility fund we
currently track.
Friday might have been scary from the technicians’
point-of-view as equity indices were unable to hold their gains and closed near
their lows, tensions cooled enough to allow a handful of individual names to
outperform on the day and keep it from being a slam dunk for defensive
equities. GDX lost over 2.4% on the day
as December’s strong Employment Report signaled that the Fed could potentially
be on track to raise rates again in early spring which would raise the
opportunity cost of holding the miners.
Utility funds also suffered minor losses on the day as their recent
outperformance against the broader equity markets has reached almost extreme
levels and has investors seeking out more attractive price-to-yield
opportunities elsewhere, most noticeably among MLP funds that were hard hit by
profit taking earlier in the week. MLP
funds had a strong run-up in late December and a good chunk of those gains were
given back in the first four days this week but a number of funds recovered
some lost ground on Friday including the JP Morgan Alerian MLP ETN (AMJ) with a
1.17% gain. In fact, if you used the
Quant Report to re-rank our coverage universe based on short or intermediate term
momentum, AMJ would make the list of top 50 funds based on its recent price
action while even broader energy sector funds like the SPDR Select Sector
Energy SPDR (XLE) makes the top 100 as its price performance becomes “less bad”
relative to the broader markets.
For those who can look beyond the doom and gloom and with
the S&P 500 just crossing into oversold territory, there’s always the
possibility that any calm overseas could help spark at least a short-term rally
here at home and what could lead the way higher then? You could use the ETFG Quant Report to find
funds with high implied volatility and low but improving momentum (which would
mostly get you more MLP funds) or you can use the Grey Market report to back into
funds offering high exposure to names that could see the most bound from a
“world’s not ending today” rally. A
handful of stocks found strength on Friday including Apple (AAPL) after
dominating much of the headlines earlier in the week when the stock broke below
$100 on heavy distribution. Leaving
issues of iPhone sales aside, a technician would tell you that distribution has
pushed the stock into deeply oversold territory and given its size and
popularity, could make it a candidate for a near term bounce. Our Grey Market report identified the iShares
Technology ETF (IYW) as having the single largest percentage allocation to AAPL
in our coverage universe at 16.5% and it definitely shows in the funds
behavioral rankings. Even with a healthy
dose of the FANGs, IYW’s short and intermediate term technical scores rank in
the lowest decile while short interest and implied volatility remain relatively
high. With the fund approaching the
levels where it found support last August and for those with strong stomachs, it
might be worth putting the fund on your watchlist if equities begin to find support
over the next few weeks.
Thank you for reading ETF Global Perspectives!
_______________________________________________________________
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