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4 ETFs Staring At The Death Cross (EWQ, EZU, RYE)

May 30, 2012 2:39 am
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There are hundreds of technical scenarios chartists swear by. Head and shoulders formations, double tops, triple bottoms and scores of others, but one of the most efficacious is the death cross. Explaining the death cross to a six-year-old is easy. It’s the situation where a security’s 50-day moving average crosses below its 200-day line.

While no signal is 100% accurate, the death cross is at least simple and frequently effective. We took a look at five death cross ETFs on March 6 and the average loss absorbed by the group since then is over 16%.

With that performance and the market’s downward gyrations in recent weeks, we thought it would be a good idea to revisit the death cross well. Some of the funds featured here have already done the death cross dance while others are getting close.

Guggenheim S&P Global Dividend Opportunities Index ETF (NYSE: LVL)
LVL, which is yielding over 5%, is heavy on financial services stocks (24.3% of the fund’s weight), but that exposure should be tempered by an almost 24% to telecommunications issues. To be fair, most of LVL’s financial holdings are high yielding mortgage REITs such as American Capital Agency (Nasdaq: AGNC) and Annaly Mortgage (NYSE: NLY), not traditional money center bank stocks.

On the other hand, it’s easy to see why LVL recently entered death cross territory. Five Euro Zone nations combine for a third of the fund’s country weight.

iShares MSCI France Index Fund (NYSE: EWQ)
Speaking of the Euro Zone, we present EWQ, the ETF tracking the region’s second-largest economy. There’s not much of a good news story with EWQ these days. Off 9.3% in the past month, the only France-specific ETF is in a position where the death cross hasn’t happened yet, but it’s really a matter of “when” not “if.”

EWQ’s largest holding, French oil giant Total (NYSE: TOT), has a compelling yield and valuation at the moment, but only that stock directly is probably a better idea than using EWQ as a proxy for Europe’s third-largest oil company.

iShares MSCI EMU Index Fund (NYSE: EZU)
EZU’s dalliance with death cross territory could be confirmed any day now and like LVL and EWQ, the Euro Zone is the culprit, though that should be obvious by the fund’s name (EMU stands for European Monetary Union). France and Germany account for almost two-thirds of the ETF’s weight, but the real problem is a 17.6% allocation to financials and an almost 17% combined weight to Spain and Italy. As TradeWithPete.com notes, EZU’s October low is the key technical area as a break there coupled with that area turning into resistance would be a bearish sign.

Guggenheim S&P Equal Weight Energy ETF (NYSE: RYE)
In more sanguine market environments, it’s not surprising to see equal-weight ETFs outperform their cap-weighted counterparts. The market is far from sanguine these days and not only has RYE recently trailed the Energy Select Sector SPDR (NYSE: XLE), the Guggenheim fund recently earned a death cross. To be fair, XLE isn’t far behind. Any potential RYE has to correct its death cross in the near-term hinges on its ability to hold support at $55.

For more on energy ETFs, please click HERE.

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