Market Overview

Moving Averages Indicate These Sector ETFs Could be Stretched

In a previous examination of some ETFs and their relationship to simple moving averages, we looked at a group of funds that were either below or vulnerable to giving up their 50-day moving averages.

This time around, the ETFs under the spotlight will be sector funds populated by a fair amount of stocks that are currently trading well above their 200-day moving averages. To be precise, only those S&P 500 members trading at least 10 percent above their simple day moving averages were considered for this list. Fortunately, that is a robust total of nearly 290, as the screen indicates.

The caveat here is that only time will tell if the ETFs that house these stocks will be vulnerable to pullbacks and it must be acknowledged that a stock or ETF that looks overbought can stay that way for a while. With that, here are a few ETFs with a significant amount of their total weight currently allocated to stocks trading at least 10 percent above their simple 200-day moving averages.

iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (NYSE: IEO)
As predicted, IEO has proven to be a beneficiary of positive seasonality for the energy sector. That has the ETF up more than four percent in the past month and more than 14 percent year-to-date.

IEO is home to 62 holdings, but the top-10 control over 60 percent of the fund's weight and plenty of those names are trading 10 percent or more above their 200-day lines. That group includes Anadarko Petroleum (NYSE: APC), Marathon Petroluem (NYSE: MPC) and Pioneer Natural Resources (NYSE: PXD). EOG Resources (NYSE: EOG), another IEO top-10 holding, barely missed out at "just" 9.5 percent above its 200-day line.

Phillips 66 (NYSE: PSX) makes up for that as the refiner is more than 40 percent above its long-term moving average. The stocks mentioned here represent roughly a quarter of IEO's weight.

Consumer Staples Select Sector SPDR (NYSE: XLP)
Consumer staples stocks have been a leadership group this year, but that has also prompted some frothy valuations at the ETF and stock levels. XLP, the largest staples ETF, currently has a P/E ratio of almost 17.

Most of XLP's top-10 holdings are not 10 percent or more above their 200-day lines. These are the ones that fit the bill: Procter & Gamble (NYSE: PG), PepsiCo (NYSE: PEP), Costco (NASDAQ: COST) CVS Caremark (NYSE: CVS) and Mondelez (NASDAQ: MDLZ). That is about 29 percent of XLP's weight, but the hits keep on coming.

Kraft (NASDAQ: KRFT), Kimberly-Clark (NYSE: KMB), Kellog (NYSE: K) and General Mills (NYSE: GIS), a combined seven percent of XLP's weight, all reside more than 10 percent above their 200-day lines.

iShares Nasdaq Biotechnology Index Fund (NASDAQ: IBB)
Given the sector's reputation for holding up well in the face of global macroeconomic issues, such as Cyprus, biotechnology ETFs could be one group that keeps on climbing despite being home to a lot of stocks that appear overbought.

The iShares Nasdaq Biotechnology Index Fund is already up more than 13 percent this year, but being home to 120 stocks, IBB might imply that is fairly diverse. In reality, the ETF's top-10 holdings account for 57.2 percent of its weight.

Biotech's "big four" of Amgen (NASDAQ: AMGN), Biogen Idec (NASDAQ: BIIB), Celgene (NASDAQ: CELG) and Gilead Sciences (NASDAQ: GILD) combine for over 28 percent of IBB's weight. Amgen is the least extended above its 200-day line at 16.2 percent.

Alexion (NASDAQ: ALXN), Vertex Pharmaceuticals (NASDAQ: VRTX) and Perrigo (NASDAQ: PRGO) are the IBB top-10 holdings not at least 10 percent above their 200-day moving averages. IBB's eleventh through 14th-largest holdings make up for it because all are well above their 200-day lines.

For more on ETFs, click here.

Posted-In: Long Ideas News Sector ETFs Short Ideas Commodities Technicals After-Hours Center Markets Trading Ideas ETFs Best of Benzinga

 

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