These ETFs Have Moving Average Problems

February 27, 2013 3:23 pm
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Let’s quickly clear up that headline. Not all of the ETFs that will be highlighted here have violated a key moving average such as the 50- or 200-day lines.

However, the funds that will be discussed here have another problem: Plenty of their components have recently fallen below their simple 50-day moving averages.

This is important because despite what some critics would have investors believe, when it comes to equity-based ETFs it is the fund’s underlying components (the stocks) that determine price action for the ETF.

With that in mind, a screen for large-cap stocks trading below their simple 50-day moving averages was run to see if multiple stocks popped up from the same sectors. The thesis being that that would be an important clue regarding which ETFs potentially technically vulnerable in the near-term. Here is what the screen turned up.

iShares FTSE China 25 Index Fund (NYSE: FXI)
Given the disappointing start to 2013 turned by Chinese equities, it is not surprising that FXI is languishing about 4.6 percent below its 50-day line. Technically speaking, things could get worse before they get better.

The screen turned up just four mega-cap stocks trading below their 50-day lines. Two are China Mobile (NYSE: CHL) and PetroChina (NYSE: PTR), which combine for over 13 percent of FXI’s weight.

China Unicom (NYSE: CHU), China Telecom (NYSE: CHA), China Life Insurance (NYSE: LFC) and Sinopec (NYSE: SNP) all fall into the same category. Remember, FXI is only home to 26 stocks and at least six are below their 50-day moving averages. The six FXI constituents mentioned here combined for roughly 28 percent of the ETF’s weight.

iShares S&P Global Energy Sector Index Fund (NYSE: IXC)
After recently dropping below its 50-day line, the iShares S&P Global Energy Sector Index Fund has ever so slightly risen back above that important technical indicator. How long those good times will last appears to be a tricky call to make. Here is why.

Royal Dutch Shell (NYSE: RDS-A), Europe’s largest oil company, is one of the other mega-cap names residing below its 50-day line. So are some of Shell’s major rivals, including BP (NYSE: BP) and Total (NYSE: TOT). That trio combines for almost 17 percent of IXC’s weight.

Other global oil names with U.S. shares below the 50-day line include the aforementioned Chinese names, Ecopetrol (NYSE: EC), Encana (NYSE: ECA) and Petrobras (NYSE: PBR). All of those stocks are also IXC constituents.

Market Vectors Agribusiness ETF (NYSE: MOO)
This is a fairly straight-forward scenario. In alphabetical order, here a few of the MOO holdings residing below their 50-day lines, which explains why the same fate has befallen the ETF: Agrium (NYSE: AGU), Bunge (NYSE: BG), CF Industries (NYSE: CF), Deere (NYSE: DE), Mosaic (NYSE: MOS) and Potash (NYSE: POT).

Those are six of MOO’s top-14 holdings and three of the ETF’s top-10. Combined, Deere and Potash are nearly 13 percent of the ETF’s overall weight.

SPDR S&P International Health Care Sector ETF (NYSE: IRY)
IRY was recently mentioned as one of several unheralded global health care ETFs. For the moment, it might be left undiscovered because although the ETF is trading above its 50-day moving average, a decline below that level could be in the offing.

IRY is home to 117 stock, but the top 10 holdings represent nearly 60 percent of the fund’s weight. Of that group, the screen shows AstraZeneca (NYSE: AZN), Sanofi (NYSE: SNY) and Teva (NASDAQ: TEVA) all below their 50-day lines. That trio equals about 14.4 percent of IRY’s weight.

The news could get worse. At least two other IRY top-10 holdings – GlaxoSmithKline (NYSE: GSK) and Novo Nordisk (NYSE: NVO) – are within pennies of giving up their 50-day moving averages.

For more on ETFs, click here.

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