Avoid These ETFs For Now (FXI, TVIX, GDXJ)
The reality is we live in an instant gratification world and the financial markets are no exception. If anything, the markets are perpetrators of the "please me now" outlook so many of us have. No big deal because there is clearly something to be said in favor of short-term trading.
On the other hand, trading for the sake of trading is not a sound risk management philosophy and sometimes it pays to know what to avoid as it is knowing what to embrace. That's what we're looking at here: A few ETFs that have particularly bleak prospects over the next several weeks that have the near-term "avoid" label.
VelocityShares Daily 2x VIX Short-Term ETN (NYSE: TVIX) The level of controversy surrounding volatility ETNs is just too much to make them worth embracing. Like leveraged ETFs such as the Direxion Daily Financial Bull 3X Shares (NYSE: FAS), volatility ETNs like TVIX are best left to the pros. When an ETN drops more than 12% in a single day in part because its net asset value got a little rich, it's probably best to leave this thing alone.
Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) This is one a lot of traders clearly have on their personal avoid/sell short lists and that much is highlighted by what has become a grizzly performance over the past month. The knock on ETFs such as the Market Vectors Junior Gold Miners ETF and its large-cap cousin, the Market Vectors Gold Miners ETF (NYSE: GDX) has been that they don't do a good job of tracking gold prices on the upside.
In twist of the dagger, these ETFs do respond to gold futures selling off. Let's say this: GDXJ was near $29 when Fed Chairman Ben Bernanke quashed hopes for QE3 in February. The ETF is at $24 today and looks poised to test its 52-week low. Don't be fooled by what looks like an inviting yield.
Materials Select Sector SPDR (NYSE: XLB) The problem with the Materials Select Sector SPDR at the moment is two-fold. First, the ETF's chart shows technical vulnerability. Second, this an ETF that should be responding to positive U.S. economic data more than it is. XLB is being hamstrung by weakness in Freeport McMoRan (NYSE: FCX) and Newmont Mining (NYSE: NEM), two of its top-10 holdings. Until those two names, Freeport in particular, get their acts together, XLB is in for near-term weakness.
iShares FTSE China 25 Index Fund (NYSE: FXI) There are plenty of reasons to be avoiding the China pain train right now and plenty of ETFs where a short or sidelines approach is warranted. Actually, there are nearly 230 ETFs offering China exposure, but FXI, the largest China fund makes the list today.
Yes, Chinese equities have cheaper valuations right now than broader emerging markets universe. The broader Chinese market is also down over the past year and the macro environment is not supportive of more upside in the here and now. We're not forecasting a new bear market for Chinese stocks, but we will say better prices will be available for FXI in the coming weeks.
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