Yet, if we review the last 15 years, we find that "risk-on" investing meant choosing small company stocks from the fastest growing economies worldwide. With China's economy turning a corner in the fourth quarter of 2012, small-cap emergers via EWX have celebrated in phenomenal fashion.
It should be noted, though, EWX is flashing severely "overbought" warning signals. The last 3 times that EWX experienced Relative Strength Index readings at these levels, the asset went on to register losses of roughly -17%, -33% and -14% respectively. A correction may or may not occur here, but bullish investors should probably wait for a 7%-8% pullback before entering at this stage.
3. SPDR Select Utilities (XLU). For the last three years, it's been a relatively pain-free ride higher. Still, the recent declines from 52-week highs has a number of folks warning that the safer haven stock segment is "overvalued."Maybe so. However, the more important issue here would be to monitor whether XLU can stay near its 200-day trendline. If it falls dramatically lower, that might be an early indication that investors fear a spike in interest rates. If XLU moves dramatically higher, that might be an indication of indiscriminate enthusiasm. Many investors in utility stocks select the non-cyclical segment to avoid the rocky road; they prefer a smooth ride higher. Hugging the long-term trend would be a positive for these markets, whereas a dramatic swing in utilities might be a warning shot across the stock bow. Follow @ETFexpert This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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