4 ETFs to Buy On Market Weakness (IYW, ECH, SOCL)
Just 10 days into May, it seems like everyone and his sister is crowing about "Sell in May and go away." It's easy to understand why. Prior to Thursday, the S&P 500 had settled lower in five of the previous six trading sessions while the Dow Jones Industrial Average was in the midst of a six-day losing streak.
A confluence of weak U.S. and Chinese economic and lingering concerns about Europe's sovereign debt crisis have plagued riskier assets for several weeks now. That's the bad news. The good news is there are more ETFs than one would expect showing plenty of moxy right now.
For the back half of 2012, a combination of ETFs currently flexing their muscles and buy-on-the-dip candidates could prove efficacious for savvy investors. As we've already highlighted some of the strong funds, let's now examine some of the credible buy-on-the-dip plays.
iShares MSCI Chile Investable Market Index Fund (NYSE: ECH) Why not start off with a fund that can be best described as high risk/high reward given the current state of affairs in the global markets? There are caveats with ECH that must be acknowledged before running straight into this fund. Indeed, the ETF is down over the past week and the past month. More importantly, the dip to buy on may be occurring right now as the ETF is testing support at $65. If that support doesn't hold, then the next buyable dip is the 200-day moving average around $63.
If that doesn't work, well, it's probably time to leave ECH alone. The bull case for ECH is apparent, though. The fund has outperformed comparable Brazilian rivals in recent weeks and the Chilean economy is one of the more stable options in the emerging markets universe at this juncture.
Vanguard Dividend Appreciation ETF (NYSE: VIG) VIG and ECH share little in common, but VIG is also an example of an ETF that is currently experiencing a pullback that may prove trade-worthy going forward. With a beta of just 0.81, VIG is not designed to be a short-term trade. That said, should support at $56 hold, VIG would be a nice pickup for patient investors in anticipation of a run to $60 six to eight months out.
Since VIG's expense ratio is just 0.18%, it's not as though investors will be punished by waiting for this fund to really kick into high gear.
Global X Social Media Index ETF (Nasdaq: SOCL) Yet again we're testing the high risk/high reward waters with a fund that is in the middle of a pullback. In SOCL's case, the pullback has been quite nasty as the ETF has tumbled more than 6% in the past week. It's possible that this selling is nothing more than clearing out the week hands prior to the Facebook IPO.
If the Facebook IPO is a success, SOCL will respond to the upside and that could happen even before the stock is added to the ETF's lineup. Facebook will need to complete five trading days before it can be added to SOCL, so this with an appetite for risk might want to consider a small position in SOCL now in preparation of the most anticipated IPO of all-time.
iShares Dow Jones US Technology Index Fund (NYSE: IYW) Let's just say the world has been warned about the dangers of an ETF allocating an excessive amount of its weight to just one stock. In the case of the iShares Dow Jones U.S. Technology Index Fund, that one stock is Apple (Nasdaq: AAPL).
With an allocation of 21.7% to the tech juggernaut, IYW still offers the largest weight to the largest U.S. company by market value of any ETF. In the past month, that has been nothing to brag about as Apple has slid 9%, dragging IYW down to the tune of 4.6% in the process.
IYW's pullback has definitely commenced. A fall from the April peak of almost $79 to $72.50 today indicates as much. The bull case here is, of course, intimately linked to Apple. Are U.S. stocks going to bounce without the help of Apple? Probably not and since Apple's fundamentals are as strong as ever, IYW is a legitimate buy-on-the-dip play.
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