The Kirk Report

ETFs Up +50% Since March 31st

At quarter-end it is always interesting to see what some basic performance scans show up. Case in point, the ETFs which are up more than +50% since the closing price on March 31st:

The top performer has been the Emerging Markets Bull 3X (EDC) with a +102% gain over this time frame:

As we can see from its chart, we recently violated the ATR stop, got very oversold, and then bounced. But, we haven't take out those former highs and remain vulnerable for 1) another breakdown or 2) a lengthy sideways consolidation phase. If you look closely enough, you'll also see something I'm finding in quite a few charts of late - an ominous head-and-shoulders formation.

Either way, this one should be on your radar as it may serve as a good tell for the overall market.

Back In The Groove

On April 14th only 8% of ETFs were trading above their 200 day simple moving average. However, as of Friday's close, 39% are now trading above that level (here's the spreadsheet).

Let's now take a look at 10 of the "above 200 day MA" ETFs which have also performed the best during the month of May. Pay attention to the areas of the market highest represented within this group and their moving averages:

Needless to say, the emerging markets and commodities are back in the New York groove. Whether we see golden crosses (50 day moving average (purple line) crosses above the 200 day moving average (yellow line) will be something to keep an eye on over the short-term in most of these ETFs. Only the Market Vectors Gold Miners ETF (GDX) has accomplished this task so far!

ETF Relative Strength Trends

It is no secret that I've been trading ETFs this year more than before. While I still think opportunity can be found in stocks, the increased volatility in the market combined with a need to hedge against individual stock risk in a recession/bear market have made ETFs a far more valued trading vehicle. In fact, I'd even go so far as to suggest that most individual investors would be far better served trading ETFs rather than stocks for this very reason especially if they are highly-skilled in the art of technical analysis.

I bring all of this up because recently I was asked by a member how I screen for and look for trading setups in ETFs. Much like I do with individual stocks, I search for trading setups that are both.....[READ]

Top 25 ETFs

Over the weekend I ran a simple performance filter of over 300 ETFs in order to find the top 25 best and worst performers since the January 22 close. Here's what I found:

Buyers of metals, mining, steel, natural gas, agriculture, Latin America, regional banking have clearly outperformed while those who have been short (as represented by the ultrashort ETFs) have taken a beating across the board.

Among the surprises looking through both of these lists include how strong Brazil has been, the rally in mid-cap stocks (especially with so much focus on the large cap/small cap debate), and how poorly the healthcare and biotech sectors have fared.

In addition, with all of the bottom calling going on in the financials, I found it of interest to see that only the KBW Regional Banking ETF (KRE) managed to be within the top 25. For what it is worth, Hudson City Bancorp (HCBK) represents 3% of that ETF.

* Interesting to compare this list of ETFs with the list we saw back in September.

ETFs: Top 20 Favorite Resources

ETFs are fast becoming the trading and investment vehicle of choice. While I'm definitely no expert in this area, I recently asked readers for their favorite resources for ETFs. The top 20 most recommended were:

• Seeking Alpha's ETFs:  Fresh news, commentary, and opinions from a variety of sources


• iShares:  Their funds are a favorite by many and their website earns top marks


• The Prudent Trader:  Comprehensive education and analysis put together by a smart trader


• ETF Digest:  Dave Fry's newsletter with daily commentary & charts


• ETF Investment Outlook:  Newsletter-focused website with helpful breadth rankings


• ETF Screen:  ETF screener and ETFs ranked by relative strength


• ETF Zone:   Discussion forums, model portfolio tool, and basic ETF information


• ETF Trends:  A blog focused on ETFs by an experienced money manager


• ETF Guide:  News, ready-to-go portfolios, and ETF learning center


• ETF Desk:  A comprehensive resource with excellent ETF tools


• Sector Spiders:  All-around excellent resource with very useful tools and fact sheets


• Morningstar:  Comprehensive resource and commentary


• Yahoo's ETF Center:  Education and good top-performers screen updated intraday


• IndexUniverse:  Breaking news, research, and commentary


• WSJ's ETF Screener:  A nice ETF screener


• InvestIQ:  A generic ETF allocator


• Random Roger:  Well-known blogger who often focuses on ETF analysis and market commentary


• PowerShares:  Popular ETF provider has a variety of products and tools


• The Value Line ETF Survey:  ETF focused newsletter based on Value Line's Timeliness Ranking System


• ETF Central:  ETF Tracker and headlines along with a daily blog

Did I miss anything you find useful? Please let me know!

Leveraged ETFs

When you think you are going to be right about where the market is headed, it is a natural desire to seek creative ways to maximize your profit. That's why ETFs that are leveraged to double the return of the market are increasing in both interest and popularity. In fact, it is rare that I don't receive an email every day that someone doesn't ask for my view on one of the ProShares' leveraged ETFs.

Like a lot of ETF providers, ProShares hasn't stopped there. We now have leveraged ETFs for individual sectors for those of you who think specific sectors are going to outperform/underperform.

So, what are my thoughts about these offerings? The bottom line is that I think they can be good trading vehicles, but with three main caveats:

1) Liquidity: the liquidity in many of these products still isn't at the same level as the more mainstream ETFs like the QQQQ, DIA, and SPY. This is important to those of us who trade in relatively large positions and who are reasonably concerned about the reliability of current electronic trading systems in a major market correction.

2) Expenses: the expense ratio is higher in this products making them far less friendly for long-term investors and, if used incorrectly, will tend to increase trading costs, taxes, and trading activity which is not ideal for most investors.

3) Suitability: these kind of ETFs are only suitable for a small part of the population. In sum, if you can't already time the market consistently well using the non-leveraged market-matching ETFs, then using leverage is only going to maximize both your profits and, more importantly, your mistakes. While the market hasn't been volatile of late, many people, including myself, think that will change. If so, can you handle 2% to 5% daily swings in these kind of positions? If you've never tested your resolve, emotion, and strategies in that kind of pressure-packed situation, you're far better off to learn how to walk before you run or you will get yourself in serious trouble very quickly. I would only recommend these to advanced traders who are looking to increase some beta in their portfolios (as a relatively small percentage of net assets) AND who already have shown they can handle the increased risk and pressure these kinds of ETFs bring to the table.

The speed and frequency of new ETFs being released these days will literally make your head spin and, like many of you, I also have trouble keeping up with all of the new offerings and latest trends. If you have tools and websites you find particularly helpful to stay on top of these, please let me know. Like before, I'll be sure to pass your recommendations along in a future post.

Q&A With David Fry

Last month, members and I enjoyed the Q&A we had with David Fry, of ETF Digest. So much so, that I've had numerous requests to extend the Q&A series where I ask other leading experts their opinions and insight.

Given how popular exchange traded funds have become, I thought it was the right time to talk to an expert about how best to incorporate their use in both investing and trading. While I usually only publish these Q&As at the members' only website, I've decided to publish this report for everyone for free on my first day back from vacation. If you haven't read it already, I think you'll find it both informative and instructive. READ