Top ETFs to Buy Now
Stocks did extremely well in the first quarter of 2011, climbing the “wall of worry.” In mid-March, the natural disasters that ravaged Japan, the threat of a protracted ground war in Libya, a budget fight in Washington, and the Fed’s acknowledgment of the threat of inflation led to a deep “V” sell-off and recovery.
The recovery, however, has stalled at the S&P 500’s resistance line at 1,332, and until that is penetrated, the major indices appear vulnerable to a pullback. But as the saying goes, “one man’s poison is another man’s cure.”
The following exchange-traded funds (ETFs) were chosen because of their ability to benefit from the uncertainties that are currently holding back the market.
Market Vectors Gold Miners ETF (GDX)
The Market Vectors Gold Miners ETF (NYSE: GDX) seeks to replicate the price and yield performance of the AMEX Gold Miners Index. The fund normally invests at least 80% of its total assets in the common stock of gold mining stocks.
Until February, gold bullion was performing better than the miners. But recently, the miners have been making up for lost ground since their earnings are leveraged versus bullion. If GDX breaks a triple-top at $64.62, it should run quickly to $70. But more importantly, it will confirm that the mining stocks are increasing in relative value to bullion, so the longer-term trend could outpace the rise of the metal for the longer term. Even though the Moving Average Convergence/Divergence (MACD) indicator may appear to be overbought, its current strength supports a breakout of the ETF.
Market Vectors Coal ETF (KOL)
The Market Vectors Coal ETF (NYSE: KOL) seeks to replicate the price and yield performance of the Stowe Coal Index. The fund normally invests at least 80% of total assets in equity securities in the coal industry.
The ETF bottomed several years ago at under $10. Following a consolidation at just under its 20- and 50-day moving averages at under $48, KOL broke out from $50 with a new target of $56. Hold KOL if you own it, and buy it as a long-term investment if you don’t.
iShares MSCI Emerging Markets Index Fund (EEM)
The iShares MSCI Emerging Markets Index Fund (NYSE: EEM) is designed to measure performance in the emerging markets, and has been a favorite of investors who want broad exposure to developing markets.
A number of the technical characteristics indicate that this investment is headed north. After a consolidation that lasted seven months, EEM broke through a triple-top on high volume. But it may have gotten ahead of itself and should be bought on a pullback. Momentum is declining, so place orders for EEM at the $48 support line. However, if buying volume picks up and the recent high at over $50 is exceeded, buy EEM at the market as a long-term hold. This ETF could double from its current price in 12 months.
iShares Dow Jones U.S. Home Construction ETF (ITB)
The iShares Dow Jones U.S. Home Construction ETF (NYSE: ITB) tracks the Dow Jones U.S. Select Home Construction Index. The companies that make up this index are the leading homebuilders including NVR Inc. (NYSE: NVR), D.R. Horton (NYSE: DHI), Lennar (NYSE: LEN), Toll Brothers (NYSE: TOL) and Home Depot (NYSE: HD). The index is a bottom-fisher’s delight since the stocks have sold off and many now look undervalued.
ITB appears to have made a triple-bottom low from July to December of 2010. In December, the ETF jumped through its 20-day moving average, and then in January its 50-day moving average crossed through the 200-day moving average for a strong buy signal. For three months, ITB has been consolidating in a recovery saucer — another favorable development. Long-term buyers could be handsomely rewarded if the economy permanently turns and builders’ products come back in demand.
ProShares UltraShort QQQ (QID)
The ProShares UltraShort QQQ (NYSE: QID) seeks daily investment results, before fees and expenses, that correspond to twice the inverse of the daily performance of the Nasdaq 100 Index.
After a period of consolidation following a retreat from its high of $95 in September, QID has stabilized just under $55. Now, with the market finding it difficult to break the barrier at the S&P 500’s resistance line at 1,332, this very volatile performer could quickly pop through $55 and vault to over $65 — but only if the market falls. Note the buy signal flashed from the 20-day moving average as it crossed the 50-day in late March — a favorable signal. But potential buyers should also be aware that this leveraged contra-fund is not for the faint of heart. It is for traders only, and you should always use stop- loss orders to protect against large losses.
iShares MSCI Canada Index Fund (EWC)
The iShares MSCI Canada Index Fund (NYSE: EWC) tracks stocks primarily traded on the Toronto Stock Exchange and include Royal Bank of Canada (NYSE: RY), Suncor Energy (NYSE: SU), Canadian Natural Resources (NYSE: CNQ), Potash (NYSE: POT), Barrick Gold Corp. (NYSE: ABX).
The ETF has an outstanding record of performance and technically appears able to sustain an uptrend indefinitely. It has consistently held to its major bullish support line, now at $32. EWC is an outstanding long-term investment in the solid management and resources of our neighbor to the north. Longer term, EWC is expected to return an annual performance of 10%-plus for several years.
