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Tracking Sector ETF Bubble Characteristics

NEW YORK ( TheStreet) -- Monetary policy has produced many bubbles in the U.S. capital markets during the Greenspan and Bernanke years at the Federal Reserve.

The gold bubble began to inflate in 2002 and popped with an all-time high at $1923.7 an ounce in September 2011. Gold had been above its 200-week simple moving average since 2002 and has been below it since this past April.

The crude oil bubble inflated to a high of $144.27 per barrel in July 2008 then popped to a low of $33.20 in January 2009. Oil has been trading back and forth around its 200-week SMA at 91.09 since mid-2009.

In the U.S. equity markets the Nasdaq is attempting to re-inflate the bubble of the year 2000 with the current levels well within the 'dunce cap' that typically forms after a bubble pops.

Today I profile 11 sector ETFs that show bubble characteristics with eight showing potential peaks in the Sept. 19/Sept. 20 window.

Reading the Table



Last 12-Month Return (%): Stocks with a Red number declined by that percentage over the last twelve months. Stocks with a Black number increased by that percentage.

The 200-day Simple Moving Average: I consider the 200-day as the mean price for a stock and when a stock is above its 200-day it reflects the risk of reversion to the mean. A number in Red means that the stock is below its 200-day.

Value Level: is the price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual. Today I show two value levels.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: is the price at which to enter a GTC Limit Order to sell on strength. Today I show two risky levels.

iShares Consumer Services (IYC) ($109.46) set an all-time high at $112.25 on Sept. 19. This is the first of three retail-oriented ETFs that I am profiling today. What I am concerned about within retail is that the various consumer sentiment readings have been slipping recently and have stayed well below the neutral zone of readings between 90 and 110. Continued new highs for the retail ETFs implies that consumer sentiment should be above 110. My weekly value level is $107.42 with a monthly pivot at $113.96 and quarterly risky level at $119.81.

iShares Dow Transports (IYT) ($116.88) set an all-time high at $121.00 on Sept. 20. Weekly and semiannual value levels are $116.77 and $110.40 with monthly and semiannual risky levels at $121.99 and $127.00. It's strange to see this ETF so resilient with the sector having an 'avoid -- source of funds' rating.

SPDR Basic Materials (XLB) ($42.03) set a multi-year high at $43.78 on Sept. 19, shy of the all-time high at $46.54 set in May 2008. Strength in these stocks is surprising given the weakness in the gold mining stocks. Monthly and annual value levels are $41.16 and $40.36 with a weekly pivot at $42.06 and semiannual risky levels at $45.79 and $46.05.

SPDR Oils-Energy (XLE) ($83.05) set a multi-year high at $85.74 on Sept. 19, shy of the all-time high at $91.42 set in May 2008. This sector of 556 stocks only has eight in the buy rated categories.

SPDR Finance (XLF) ($19.82) set a multi-year high at $20.93 on July 23 then a secondary high at $20.82 on Sept.18, well shy of the all-time high at $38.15 set in June 2007. In a sector of 3,086 stocks only 2.8% have buy or strong buy ratings and this ETF has become a laggard. My weekly and semiannual value levels are $19.60 and $17.46 with a semiannual pivot at $19.70 and monthly and semiannual risky levels at $21.19 and $22.16.

SPDR Industrial Products (XLI) ($45.95) set an all-time high at $48.01 on Sept. 19. The industrial products sector has an underweight rating and could be adversely affected by the partial shutdown of the U.S. government. Weekly and semiannual value levels are $45.93 and $43.08 with a monthly pivot at $47.11 and semiannual and quarterly risky levels at $49.14 and 50.44.

SPDR Technology (XLK) ($32.04) set a multi-year high at $32.91 on Sept. 19 with the April 2000 bubble peak at $56.88. This ETF lags the performance of the Nasdaq vs. the March 2000 bubble peak. My annual value levels are $27.22 and $26.24 with a monthly pivot at $32.86 and semiannual risky levels at $34.77 and $34.82.

SPDR Consumer Staples (XLP) ($39.68) set an all-time high at $42.19 on May 28 then set a secondary high at $41.84 on Sept. 19. This ETF has provided a negative divergence since the May high and is just above its 200-day simple moving average at $39.54. Weekly and semiannual value levels are $38.73 and $37.76 with semiannual and monthly risky levels at $42.35 and $42.91.

SPDR Utilities (XLU) ($36.97) set a multi-year high at $41.44 on April 30, when it was the best performing ETF year to date. The all-time high is $44.66 set in December 2007. This ETF was a beneficiary of the Federal Reserve's QE3 and QE4 bond purchases programs, but was hurt when Treasury yields began to rise in anticipation of tapering. If Congress continues the charade of not raising the debt ceiling the Fed may not be able to buy $85 billion in mortgage-backed securities and Treasuries, which could be considered tapering by default. The utilities ETF is below its 200-day SMA at $37.96. My weekly value level is $35.61 with a semiannual pivot at $37.08 and quarterly and monthly risky levels at $39.89 and $39.99.

SPDR Medical (XLV) ($50.65) set an all-time high at $52.19 on Sept. 19, but this weekly chart has gone parabolic as the Obamacare exchanges attempt to open for business. Weekly and semiannual value levels are $50.09 and $47.93 and monthly and quarterly risky levels at $53.52 and $53.85.

SPDR Consumer Discretionary (XLY) ($60.12) set an all-time high at $61.75 on Sept. 19 with this sector of 407 stocks having an equal-weight rating with 81% of the stocks rated hold. My weekly and semiannual value levels are $59.24 and $55.37 with a semiannual pivot at $61.27 and monthly and quarterly risky levels at $63.06 and $65.76.

The uncertainties surrounding the outcome of the debt ceiling debate has been a negative for the stock market and hence the ETFs that correlate to the key sectors of our economy. The concept of having a debt ceiling in the U.S. began back in 1917 according to Wikipedia. My father traded U.S. government bonds between 1938 and 1972, which was the year I started trading his book of business in the primary dealer community. I was an active bond trader into 1987 as I transferred my skills to analysis and research. In the past raising the debt ceiling was considered a formality. The only other democratic country that has a debt ceiling is Denmark, where it remains a formality.

Having a debt ceiling in the United States is a huge mistake, and the actual debt is much larger than stated. The U.S. dollar is the currency of choice in international trade and the strongest economy in the world should not place a limit on its debt.

In 2011 a delay in raising the debt ceiling caused a rating agency to downgrade the U.S. debt for the first time ever and resulted in the fiscal cliff and the sequestration spending cuts.

Keep in mind that the debt backed by the U.S. government is at least $6 trillion higher when you consider that debt and mortgage-backed securities of Fannie Mae and Freddie Mac are guaranteed by the Treasury with these GSEs under conservatorship.

Doesn't this fact make the debt ceiling a bad joke? Forget the debt ceiling it's just a symbolic and inaccurate monetary statistic. U.S. government debt is a risk-free investment.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier is the chief market strategist at AlphaPlus Analytics in addition to ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

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IYC $147.26 0.00%
XLP $49.19 0.00%
XLV $74.39 0.00%
XLY $77.63 0.00%
XLU $45.15 0.00%

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