No Bounce Yet
Did anyone say oversold? Despite an
obvious oversold condition on the Nasdaq, tech stocks came under renewed selling
Wednesday, drowning the tech-focused exchange-traded funds in more red ink.
The Internet Infrastructure HOLDR
(
IIH |
Quote |
Chart |
News |
PowerRating)
tumbled 16.1%, the session’s sharpest decline among the exchange-traded
funds.
All charts in this commentary use a
logarithmic price scale as well as 50-day moving averages of price (in red) and
of volume (in blue). Some may have a 200-day moving average (in black) of price.
The blue relative strength between the price and volume charts tracks the
displayed security’s performance relative to the S&P 500.Â
Component
Portal Software
(
PRSF |
Quote |
Chart |
News |
PowerRating) cratered 63.8% after the company forecast a slowdown
in its growth rates. That carnage spread to the other stocks in the Internet
Infrastructure  HOLDR.
Its largest component, BEA Systems
(
BEAS |
Quote |
Chart |
News |
PowerRating), slumped 16.3%. Vitria Technology
(
VITR |
Quote |
Chart |
News |
PowerRating) sank 22.1%, Inktomi
(
INKT |
Quote |
Chart |
News |
PowerRating) 21.7%, VeriSign
(
VRSN |
Quote |
Chart |
News |
PowerRating) 9.6%.
The Dow Jones Internet iShares
(
IYV |
Quote |
Chart |
News |
PowerRating)
fell 8.5%, the B2B Internet HOLDR
(
BHH |
Quote |
Chart |
News |
PowerRating) 7.8%, the Internet HOLDR
(
HHH |
Quote |
Chart |
News |
PowerRating)
5.0%, the Technology SPDR
(
XLK |
Quote |
Chart |
News |
PowerRating) 3.5%, the Semiconductor HOLDR
(
SMH |
Quote |
Chart |
News |
PowerRating)
2.5%.
The board market measures fared poorly
as well. The Nasdaq 100 Tracking Stock
(
QQQ |
Quote |
Chart |
News |
PowerRating) fell 4.4%, the Dow Jones Total
Market iShares
(
IYY |
Quote |
Chart |
News |
PowerRating) 2.5%, the Russell 3000 iShares
(
IWV |
Quote |
Chart |
News |
PowerRating) 2.3%, the Dow
industrials-tracking Diamonds
(
DIA |
Quote |
Chart |
News |
PowerRating) 1.4%, the S&P 500 Depository
Receipts
(
SPY |
Quote |
Chart |
News |
PowerRating) 2.4%. Notice how the Diamonds are one of the few ETFs to
outperform the S&P (see the relative strength line moving to new high
ground).
The market was hard on financials as
well. The Financial SPDR
(
XLF |
Quote |
Chart |
News |
PowerRating) lost 2.5%, the Dow Jones Financial Services
iShares
(
IYG |
Quote |
Chart |
News |
PowerRating) 2.4%, the Dow Jones Financial iShares
(
IYF |
Quote |
Chart |
News |
PowerRating) 2.3%, the
Banking HOLDR
(
RKH |
Quote |
Chart |
News |
PowerRating) 2.0%.
Exchange-traded funds combine traits
of stocks and mutual funds. Like mutual funds, an ETF represents diversified
ownership in a number of different stocks, reducing company-specific
risk. Like stocks, ETFs trade on exchanges, nearly all of them in fact trade on
the American Stock Exchange. They quote throughout the day, enabling
traders to take advantage of intraday price moves.
Even if you prefer to trade stocks in
individual companies, keeping an eye on the tradable funds can be useful. For an
example of how I use exchange-traded funds to focus my stock trading, see my
latest Trading
The News commentary.
If you’re new to exchange-traded funds,
be sure to visit TradingMarkets’ Knowledge Center,
dedicated to explaining the basics of trading and active investing in ETFs and
mutual funds. Just click on the Funds tab
near the top of this page, then click on the Knowledge
Center tab.Â
You also will find lessons on trading
exchange-traded funds in the Stocks Education area of TradingMarkets.com. In
particular, check out my three-part series on trading ETFs, starting with
Average Crossovers. I also recommend newcomers read my tutorial,
HOLDRs: Unique Opportunity And Risk.
All stocks and exchange-traded funds
are risky. In any new trade, reduce your risk by limiting your position size and
setting a protective price stop where you will sell your new buy or cover your
short in case the market turns against you. For an introduction to combining
price stops with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
you’ll find extensive lessons in the Money
Management area of TradingMarkets’ Stocks Education section.