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Basic Materials, Agriculture ETFs Outperform Broad Markets

10/29/10 08:57:32 AM
by Donald W. Pendergast, Jr.

Based on a 12-month weighted ranking system, many of the top performing exchange traded funds hail from the metals, emerging market, and agricultural industry groups.

Security:   SLV, JJC, KOL, TAO
Position:   N/A

With gold and silver still hanging tough at very lofty price levels, it's not surprising to see that many of the top-performing exchange traded funds (ETFs) are those from the metals mining group. In fact, SLV is the top performer of all 55 ETFs that I rank in MetaStock. However, other industry groups are also represented in the top 10 ranking, suggesting that the broad markets are in better health than might be otherwise believed. Here's a quick look at the top 10 ETFs over the past 12 months that also feature very strong three-month performances as well. See Figure 1.

FIGURE 1: TOP 10 RANKING OF ETF. With a reasonable amount or diversity across the top 10 ETF ranking list, a strongly bullish seasonal period for the next two months and election-year monetary policy now in effect, all signals appear to be a go for a strong year-end rally in the broad markets.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
No surprise that one of the metals ETFs is at the top slot; we also find that China small-caps, agriculture, leisure, software, gold mining, copper, coal, gold and China real estate industry groups are filling up the other nine slots. What this is telling us is that there is a reasonable amount of sector diversity among the best-performing niches of the stock market, and that the broad market is still firing on most if not all of its cylinders.

The broad US markets boast a respectable long-term track record of outperformance from late October through the end of the year (based on analysis of seasonal charts), and there is very little reason to doubt that this year will be any different. When you put this information together with our internal industry group strength analysis, the odds look favorable for a strong year-end rally in the NASDAQ 100, Standard & Poor's 500, and Russell 2000 indexes. Another kicker in this potentially bullish equation is the fact that monetary policy has been relatively loose (not as loose as in 2008-09 but still accommodative, especially during the runup to this mid-term election), thus helping to keep both stock and commodity prices at bullish levels.

So until the ranking changes, here are a few stocks you may want to focus on. All of them have solid earnings growth potential over the next year or so, and all you need to do is time a decent trade entry and then manage it wisely. Easier said than done sometimes (not too hard with the Roy Kelly indicators, however; see my Advantage piece as of October 28 for more info), but here's the short list of stocks you may wish to investigate further:

Freeport-McMoran Copper and Gold: FCX
Newmont Mining: NEM
Penn VA Group Holdings: PVG
Alliance Resource Partners LP: ARLP
Opentable Inc.: OPEN
F5 Networks Inc.: FFIV
Polaris Industries: PII
Sturm Ruger & Company: RGR

Most of these stocks are widely followed and have very good liquidity and most offer a range of options to suit your particular needs. Do your homework and see if you can't locate a nice trade setup or two in the stocks listed.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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