Considering it is one of the top-performing exchange traded funds since the March 2009 market bottom, the Guggenheim Spin-Off ETF (CSD) has been quiet this year.
That is not necessarily a bad thing, but CSD has posted a nearly anonymous gain of 5% over the past six months and the ETF’s charts are pointing to more upside ahead.
“CSD is currently forming the handle portion of a bullish cup and handle pattern. The cup portion starts on 3/21 and ends on 6/23, where the handle begins,” according to Deron Wagner of Morpheus Trading Group.
Wagner goes on to note “A breakout above the high of the handle on a pick up in volume is the obvious buy signal. However, we’d prefer to buy a little earlier than that if possible (as usual), so the recent pullback that held support at the 20-day EMA presents us with a low risk entry point.”
Part of the recipe for CSD’s success has been heavier allocations to mid- and small-cap stocks, groups that have worked in significant fashion since the 2009 market bottom. The average market value of CSD’s 34 holdings was just $2.6 billion at the end of the first quarter. [Spin-Off ETF Still Solid]
However, it is CSD’s small-cap and consumer discretionary exposure that has hampered the ETF a bit this year. Both the iShares Russell 2000 ETF (IWM) and the Consumer Discretionary Select Sector SPDR (XLY) have lagged the S&P 500 this year.
That does not mean CSD is bereft of fundamental catalysts to go along with the aforementioned alluring technicals. Industrial, energy and financial services names combine for about 49% of CSD’s weight, giving the ETF some leverage to investors’ ongoing attraction to value sectors. [Value ETFs Have More Upside]
CSD has another potential catalyst that could work in its favor. The ETF’s largest holding is Irish drugmaker Mallinckrodt (MNK), a stock that could be primed for a short-covering rally as 27.2% of its shares are sold short, according to Business Insider.
Contributing to CSD’s near- to medium-term upside potential is the recent strength being seen from the consumer discretionary sector. Regarding CSD, investors will want to keep an eye media stocks because the ETF allocates over 9% of its combined weight to Liberty Media (LMCA) and News Corp. (NWSA).
The good news, no pun intended, is that media stocks are rebounding as highlighted by the 5.4% gain over the past month for the PowerShares Dynamic Media Portfolio (PBS) .
Guggenheim Spin-Off ETF
Tom Lydon’s clients own shares of IWM.