Rotation To Tech: What About Growth?
Nothing dramatic, but exchange-traded
funds Wednesday continued to show rotation into the technology arena. However,
before I move on to the days’ action in ETFs, let’s take a closer look at that
nature of this rebound.
The following chart represents the
comparative performance of the S&P Growth Index vs. that of the S&P
Value Index. A rising slope means growth stocks are outperforming value stocks.
A falling line indicates the opposite. Growth is the fundamental side of coin
for the intermediate-term
momentum trader.
As you can see, growth is just now
trying to rear its battered head after a long-term collapse relative to value.
The low point on this chart is Jan. 8. The Nasdaq Composite Index bottomed on
Jan. 3. So at least part of money flowing into tech is flowing into perceived
value stocks rather than high-momentum growth stocks. I’ll be keeping an eye on
this indicator. For the trader of my kind of game, intermediate-term momentum, a
healthy market most likely means continued progress of the S&P Growth Index
relative to the S&P Value Index.
The Internet Infrastructure HOLDR
(
IIH |
Quote |
Chart |
News |
PowerRating) gained
7.6%, the day’s biggest gain among the exchange-traded
funds. Among its components, Akamai Technologies
(
AKAM |
Quote |
Chart |
News |
PowerRating) rose
10.1%, Epiphany
(
EPNY |
Quote |
Chart |
News |
PowerRating) 7.6%, Exodus Communications
(
EXDS |
Quote |
Chart |
News |
PowerRating) 8.4%,
BroadVision
(
BVSN |
Quote |
Chart |
News |
PowerRating) 10.6%.
The Dow Jones Internet
iShares
(
IYV |
Quote |
Chart |
News |
PowerRating) gained 6.8%, the Internet HOLDR
(
HHH |
Quote |
Chart |
News |
PowerRating) 6.1%, the B2B
Internet HOLDR
(
BHH |
Quote |
Chart |
News |
PowerRating) 2.4%, the Software HOLDR
(
SWH |
Quote |
Chart |
News |
PowerRating) 1.9%, the Internet
Architecture HOLDR
(
IAH |
Quote |
Chart |
News |
PowerRating) 1.5%.
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.
If you’re new 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.