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Trading Sector ETFs as Equity Bubbles Inflate Then Deflate

NEW YORK (TheStreet) -- It's easy to apply my buy-and-trade strategy to sector exchange-traded funds. This allows investors to gain exposure to the sectors they want while avoiding picking the wrong stocks in those sectors.

Because ETFs trade just like stocks, you can employ my buy-and-trade strategy to capture a portion of up and down volatility. You can't do that with mutual funds, which can't be traded on an intraday basis.

My last post covering ETFs was Trading Sector ETFs Instead of Specific Stocks on Nov. 13. Since then, nine of 11 have moved higher, logging gains of 0.2% to 3.0%. In between the Nov. 12 closes and the Dec. 4 closes, 10 of the 11 sector ETFs set multiyear highs. Ten of 11 are above their 200-day SMAs reflecting the risk of a reversion to the mean. Today I update my buy-and-trade strategies.

iShares Consumer Services (IYC) ($117.87 vs. $116.04 on Nov. 12.) set a new multiyear high at $119.89 on Nov. 29, which was a test of my November risky level at $119.45 where buy-and-trade investors could have booked profits. This ETF is up 35.9% over the last 12 months and is above its 200-day simple moving average at $105.65. My semiannual value level is $109.96, with quarterly and monthly risky levels at $119.81 and $120.56, respectively.

iShares Dow Transports (IYT) ($127.95 vs. $126.89 on Nov. 12) set a new all-time high at $130.77 on Dec. 2, above my quarterly risky level, now a pivot at $127.95. This ETF is up 41.6% over the last 12 months and is above its 200-day SMA at $115.23. My monthly value level is $124.46 with semiannual and quarterly pivots at $127.00 and $127.95, respectively, and a weekly risky level at $133.90.

SPDR Basic Materials (XLB) ($43.92 vs. $44.03 on Nov. 12) set a multiyear high at $45.07 on Nov. 18 despite the decline in the price of gold. This ETF is up 21.7% over the last 12 months and is above its 200-day SMA at $40.85. As an illustration of how an ETF can outperform a sector, the basic materials sector is down 24.2% over the last 12 months. My annual value levels are $40.36 and $39.05, respectively, with monthly and semiannual risky levels at $44.83, $45.79 and $46.05, respectively.

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SPDR Oils-Energy (XLE) ($86.43 vs. $85.91 on Nov. 12) set a new multiyear high at $88.24 on Nov. 22 despite the decline of crude oil, which set a second-half 2013 low at $91.77 on Nov. 27 for a test of the 200-week SMA at $92.03. This ETF is up 22.8% over the last 12 months and is above its 200-day SMA at $81.68. The oils-energy ETF outperformed the oils-energy sector, which is up 16.1% over the last 12 months. My monthly and semiannual value levels are $85.85 and $81.91, respectively, and semiannual risky levels are at $88.35 and $91.08, respectively.

SPDR Finance (XLF) ($21.30 vs. $20.67 on Nov. 12) set a new multiyear high at $21.64 on Nov. 29 and is above its 200-day SMA at $19.69. This ETF is up 36% over the last 12 months, with the overall finance sector up just 17.2%. My semiannual value levels are $19.70 and $17.46, with weekly and monthly risky levels at $21.98 and $22.09, respectively.

SPDR Industrial Products (XLI) ($49.45 vs. $49.36 on Nov. 12) set a new all time high at $50.77 on Nov. 29 which was a test of my quarterly risky level at $50.44 where buy-and-trade investors could have booked some profits. This ETF is above its 200-day SMA at $44.59 and is up 34.4% over the last 12 months. My semiannual value level is $43.08 with semiannual and monthly pivots at $49.14 and $49.94 and my quarterly risky level at $50.44.

SPDR Technology (XLK) ($34.69 vs. $34.03 on Nov. 12) set a new multi-year high at $34.81 on Dec. 4 which was a test of my semiannual risky level at $34.77 where buy-and-trade investors could have booked some profits. This ETF is above its 200-day SMA at $31.71 and is up 19.7% over the last 12 months. My annual value levels are $27.22 and $26.24 with a monthly pivot at $34.45 and semiannual risky levels at $34.77 and $34.82.

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