IYZ remains saddled with the worst return ratios and one of the highest projected P/Es. It is again joined in the bottom two by Utilities (IDU) with a score of 19. IDU has poor long-term growth projections and relatively high projected P/E.
4. With economically sensitive Technology, Financial, Industrial, and Consumer Services all in the top 5, the rankings are looking decidedly bullish.
5. Looking at the Bull scores, Financial (IYF), Industrial (IYJ), and Materials (IYM) are tied for the lead on strong market days, scoring 53. These three are the only ones scoring above 50. Utilities (IDU) is by far the weakest on strong days, scoring 32.
6. As for the Bear scores, IDU is back as the investor favorite "safe haven" on weak market days, scoring 58, followed by IYC at 54. IYM shows by far the lowest Bear score of 40. This means that Basic Materials stocks tend to sell off the most when the market is pulling back (which hasn't been happening very often).
7. Overall, IYW still shows the best combination of Outlook/Bull/Bear scores. Adding up the three scores gives a total of 184. IDU is the worst at 109. IYW shows the best combination of Bull/Bear with a total score of 101. IDU now has the worst combination at 90, with IYE close by at 91. Also notable is that IYJ and IYH are very close in total scores, but they are nearly opposite on their Bull and Bear scores as one is clearly defensive (IYH() and the other aggressive (IYJ).
These scores represent the view that the Technology and Financial sectors may be relatively undervalued overall, while Utilities and Telecom sectors may be relatively overvalued based on our 1-3 month forward look.
Top ranked stocks within Technology and Financial sectors include Yandex N.V. (YNDX), Qihoo 360 Technology (QIHU), Banco Latinoamericano de Comercio Exterior S.A. (BLX), and Apollo Commercial Real Estate Finance (ARI).
Disclosure: Author has no positions in stocks or ETFs mentioned.
About SectorCast: Rankings are based on Sabrient's SectorCast model, which builds a composite profile of each equity ETF based on bottom-up scoring of the constituent stocks. The Outlook Score employs a fundamentals-based multi-factor approach considering forward valuation, earnings growth prospects, Wall Street analysts' consensus revisions, accounting practices, and various return ratios. It has tested to be highly predictive for identifying the best (most undervalued) and worst (most overvalued) sectors, with a one-month forward look.
Bull Score and Bear Score are based on the price behavior of the underlying stocks on particularly strong and weak days during the prior 40 market days. They reflect investor sentiment toward the stocks (on a relative basis) as either aggressive plays or safe havens. So, a high Bull score indicates that stocks within the ETF have tended recently toward relative outperformance during particularly strong market periods, while a high Bear score indicates that stocks within the ETF have tended to hold up relatively well during particularly weak market periods.
Thus, ETFs with high Bull scores generally perform better when the market is hot, ETFs with high Bear scores generally perform better when the market is weak, and ETFs with high Outlook scores generally perform well over time in various market conditions.
Of course, each ETF has a unique set of constituent stocks, so the sectors represented will score differently depending upon which set of ETFs is used. For Sector Detector, I use ten iShares ETFs representing the major U.S. business sectors.
About Trading Strategies: There are various ways to trade these rankings. First, you might run a sector rotation strategy in which you buy long the top 2-4 ETFs from SectorCast-ETF, rebalancing either on a fixed schedule (e.g., monthly or quarterly) or when the rankings change significantly. Another alternative is to enhance a position in the SPDR Trust exchange-traded fund (SPY) depending upon your market bias. If you are bullish on the broad market, you can go long the SPY and enhance it with additional long positions in the top-ranked sector ETFs. Conversely, if you are bearish and short (or buy puts on) the SPY, you could also consider shorting the two lowest-ranked sector ETFs to enhance your short bias.
However, if you prefer not to bet on market direction, you could try a market-neutral, long/short trade—that is, go long (or buy call options on) the top-ranked ETFs and short (or buy put options on) the lowest-ranked ETFs. And here's a more aggressive strategy to consider: You might trade some of the highest and lowest ranked stocks from within those top and bottom-ranked ETFs, such as the ones I identify above.