The stock market pulled back like clockwork over the last few weeks as the S&P 500 fell six percent from an all-time high to the low on Wednesday.
Looking back at the last 15 months, the largest pullback the index suffered was six percent and each time the sell-off hit the four to six percent range it resulted in a market rally to a new high.
Add in the CBOE Volatility Index (VIX) hitting a yearly closing high this week and it was a great setup for stocks to bounce. The jobs number on Friday morning was the one wild card that could have trumped all the technical indicators, but not even a poor number could hold back the equity rally.
See also: ETF Outlook For The Week Of February 10
At this point it appears buying into the current weakness is the best strategy for intermediate to long-term investors. There are a number of ETFs that are still trading off their highs and the lower prices are creating an opportunity for investors.
PowerShares Dynamic Pharmaceutical ETF PJP
The ETF is a basket of 30 U.S. pharmaceutical stocks based on a number of factors that include price and earnings momentum, quality, management action and value. During the pullback the ETF fell by seven percent and held the 50-day moving average for all but two days. What differentiates PJP from its peers is that it includes both biotech and large pharmaceutical companies versus a concentration on one or the other.
The top three holdings are Merck MRK, Biogen Idec BIIB and Gilead Sciences GILD. The expense ratio is a little higher than competitors at 0.63 percent, however it is worth it based on past performance.
First Trust ISE Cloud Computing ETF SKYY
The niche technology ETF has a distinction that not many ETFs can brag about this week. The ETF did not close below its 50-day moving average during the pullback, a feat that is impressive considering the market-wide selling. Sitting less than one percent off its all-time high hardly represents a pullback, however the relative strength makes the ETF a buy candidate. The top holdings include Juniper Networks JNPR, F5 Networks FFIV and Akamai Technologies AKAM.
SPDR S&P 500 ETF SPY
If the goal is to capture the market, SPY is a great choice. The ETF tracks the movement of the S&P 500, which contains the largest 500 stocks in the U.S. If the pattern of pulling back six percent and rallying continues, SPY should see a sizable gain in the coming weeks. Because the ETF encompasses all sectors it will help investors take a more diversified approach versus the first two ETFs mentioned.
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