Market Overview

A Look At 3 Overbought ETFs

A Look At 3 Overbought ETFs
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Investors are looking to ride the momentum train into the end of the year and hop on some of the best-performing ETFs in the market. At the same time, investors that own shares of the same ETFs are getting concerned that a pullback may be right around the corner.

The Market Vectors Semiconductor ETF (NYSE: SMH), the iShares Cohen & Steers Realty Maj. (ETF) (NYSE: ICF) and the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ: IBB) have all had a great year and are currently in the midst of their strongest rally during the last 12 months.

The ETFs are up an average of 16 percent since October 15, around the time the overall market bottomed.

The three ETFs have similar charts that include rallies followed by healthy pullbacks, the definition of a strong uptrend pattern. Heading into the first week of December, all three were trading with RSI readings at extreme overbought levels.

Related Link: When There's A Pullback On A Bull: Look At These Leading ETFs

Historically, a high RSI reading is a signal that a pullback is imminent for the ETF. With that being said, long-term investors need to realize that pullbacks are a natural and healthy part of an uptrend. On the flip side, potential buyers of the overbought ETFs should be patient.

Below are the stats and performance of the ETFs mentioned above.

Market Vectors Semiconductor ETF

SMH tracks 26 of the largest publicly traded semiconductor companies across four countries. The U.S. at 71 percent and Taiwan at 16 percent are the highest weighted countries in the portfolio.

The top individual holdings include:

  • Intel Corporation (NASDAQ: INTC) with a 20 percent holding
  • Taiwan Semiconductor Mfg. Co Ltd. (ADR) (NYSE: TSM) making up 15.8 percent of the fund
  • Texas Instruments Incorporated (NASDAQ: TXN) coming in at 5.3 percent

SMH is up 30 percent year to date and 19 percent over the last six months. The ETF is in the midst of a 21 percent rally from the October 15 low. The semiconductor ETF has an expense ratio of 0.35 percent.

iShares Cohen & Steers Realty Maj. (ETF)

ICF provides exposure to the 31 largest U.S. real estate companies.

The top holdings include:

  • Simon Property Group Inc (NYSE: SPG) with a 7.9 percent holding
  • Public Storage (NYSE: PSA) at 6.8 percent
  • Equity Residential (NYSE: EQR) making up 6.5 percent of the portfolio

The ETF is up 29 percent year to date and up 10 percent on the last six months. It is up 10 percent from the October 15 low. The REIT ETF has an expense ratio of 0.35 percent.

Related Link: How International Bond ETFs Can Add Diversification

iShares NASDAQ Biotechnology Index (ETF)

IBB is made up of 118 Nasdaq-listed biotechnology and pharmaceutical companies.

The top individual holdings include:

  • Celgene Corporation (NASDAQ: CELG) making up 8.7 percent of the ETF
  • Amgen, Inc. (NASDAQ: AMGN) with an 8.7 percent holding as well
  • Regeneron Pharmaceuticals Inc (NASDAQ: REGN) coming in at 7.6 percent

IBB is up 33 percent year to date and 26 percent over the last six months, as well as 18 percent since October 15. The biotech ETFs has an expense ratio of 0.48 percent.

It is impossible to time the market perfectly and those who try often find themselves in trouble. However, it is possible to use trends and other indicators to improve the probabilities of determining an attractive entry and/or exit price.

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