The ETF Road Less Traveled
NEW YORK ( ETF Expert) --The warning signs for a stock market pullback are everywhere. Historically, a 17% move over 17 weeks (sans correction) is not only substantive in size, it may be "long in the tooth."
What's more, the ultra-low levels on the CBOE S&P 500 Volatility Index (VIX) demonstrate complacency.
Seasonal patterns are another concern. Specifically, a wide variety of economic reports notched better-than-expected results prior to the previous three springtime sell-offs. Could history repeat itself for a fourth consecutive year? I'm not so sure how much faith I would put in "Sell in May and go away."Nevertheless, every lengthy run-up tends to slam into profit-taking and/or the "unforeseen." Moreover, the most troublesome aspect of today's runaway U.S. stock train is the lack of participation from the emerging markets. There are, however, a few stories that have flown under the radar. "Outside the box" may not even begin to describe them. (Note: These are not recommendations; rather, they are observations that may help the reader make a decision for his/her portfolio.) 1. iPath DJ UBS Cotton Total Return (BAL). Both the fundamentals and the technicals for cotton are starting to look rather cheerful. Fundamentally, China plans to stockpile the soft commodity in 2013 which is likely to encourage worldwide cotton demand/importing. Meanwhile, U.S. farmers have already decided to plant nearly 20% less fiber. Less supply worldwide implies a strong possibility of price appreciation. Technically, the 50-day trendline for BAL crossed above its 200-day (i.e., bullish "golden cross) in February. The current price is roughly 33% lower than it was two years ago, leaving ample room for price gains. 2. RBS US Large Cap Trend Pilot ETN (TRND). I wondered how long it might take for a basic trend-following concept to work its way up to $100 million in assets under management. Although TRND has received very little publicity, it has made it to the "here-to-stay" ranks in a little more than 2 years time. More importantly, TRND does not try to outwit, outsmart and outlast. TRND is fully invested in the S&P 500 if the index price is above its historical 200-day simple moving average for five consecutive days; conversely, if the price of the S&P 500 is below its historical 200-day for five consecutive days, TRND invests 100% in "cash" via an index for the three-month U.S. Treasury bill.
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