After the broader markets fell off from their record high at the start of August, exchange traded fund investors have the opportunity to buy strength on weakness to capitalize on the recent pullback in banks, biotechs and healthcare.
Investors can identify strength in ETFs that show qualities like relative strength against the market and a high ratio of new highs to new lows, Johnson Research Group said on InvestorPlace.
The relative strength helps point out solid performers and the high/low ratio reveals whether or not the strength is robust across the board or the result of a few company stocks with a large surge.
Given these parameters, Johnson Research Group points out three areas where the ETFs are besting the market returns by over 5% in the last three months.
The SPDR S&P Regional Banking ETF (KRE) has gained over 9% in the last three months. About 10% of component holdings are touching 12-month highs and no single holding has hit new lows. In comparison, the S&P 500 high/low ratio is negative, indicating weakness in the broader market.
“We expect the interest-rate trends and political environment to affect the regional banks less than the larger financials,” Johnson Research Group said.
The Health Care SPDR (XLV) is testing its short-term, 50-day moving average, and it is still outperforming the S&P 500. About 13% of underlying components are showing new 12-month highs, compared to 2% of holdings show new lows. [Investors Flocking to Healthcare ETF at Record High]
The SPDR S&P Biotech ETF (XBI) has increased over 30% year-to-date. XBI recently bounced off near its 50-day trend line. [Three ETFs to Play the Outperforming Biotech Sector]
“Biotechnology stocks are hot for an old-fashioned reason: The companies are innovating, and product pipelines for the biotech sector are bulging,” according to the research group.
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.