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.

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.

SPDR Consumer Staples (XLP) ($42.89 vs. $42.61 on Nov. 12) set a new all time high at $43.46 on Nov. 18 which was a test of my monthly risky level at $43.22 where buy-and-trade investors could have booked some profits. This ETF is above its 200-day SMA at 40.74 and is up 19.7% over the last 12 months. My semiannual and annual value levels are $37.76 and $34.73 with a semiannual pivot at $42.35 and quarterly and weekly risky levels at $43.92 and $45.03.

SPDR Utilities (XLU) ($38.23 vs. $38.61 on Nov. 12) set a multiyear 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 Dec. 2007. The high since my Nov. 13 post is $39.47, set on Nov. 18, when my weekly risky level was $39.41. This ETF is just below its 200-day SMA at $38.49 and is up 9.5% over the last 12 months. My monthly and semiannual value levels are $37.68 and $37.08, respectively, with quarterly and semiannual risky levels at $39.89 and $40.39, respectively.

SPDR Medical (XLV) ($54.61 vs. $53.26 on Nov. 12) set a new all time high at $55.70 on Nov. 25. This ETF is above its 200-day SMA at $49.36 and is up 35.7% over the last 12 months. My semiannual value level is $47.93, with a quarterly pivot at $53.85 and monthly and weekly risky levels at $55.58 and $56.09, respectively.

SPDR Consumer Discretionary (XLY) ($64.52 vs. $63.28 on Nov. 12) set a new all-time high at $65.85 on Nov. 29 where buy-and-trade investors could have booked some profits. This ETF is above its 200-day SMA at $57.91 and is up 37% over the last 12 months. My semiannual value levels are $61.27 and $55.37, respectively, with quarterly and monthly risky levels at $65.76 and $66.87, respectively.

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 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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