The S&P 500 is down more than five percent since Election Day. Investors are petrified about the consequences of the fiscal cliff. Riskier assets have been shellacked, but some conservative hideouts, namely the telecommunications and utilities sectors, have failed investors as well.
This year’s markets leaders such as high-flying tech giants Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) have also recently been taken to the woodshed. If there is a silver lining, it is that markets have a tendency to overreact to potentially ominous events such as the fiscal cliff. Investors need only remember last year’s debt ceiling debate to recall how out of sorts markets can get because of political gridlock.
In other words, the recent pullback in stocks may be a buying opportunity. There are no guarantees about that, but it is clear the following ETFs will be worth trading this week.
Utilities SPDR (NYSEARCA:XLU) In an environment where low-beta utilities stocks and ETFs should be, at the very least, less bad than the broader market, these names are actually downright dreadful. XLU has failed investors looking for some shelter from the post-election storm as the fund has dipped 6.6 percent in the past month.
XLU and the utilities space at large has been hit by a double-whammy. First, there is the obvious concern about the fiscal cliff and the increased dividend taxes that comes along with it. Second, U.S. utilities are richly valued, perhaps too much so, making these stocks and ETFs prime destinations for eager short sellers. XLU might be a bounce back play or it could be no more than a falling knife.
Merrill Lynch Retail HOLDRS (NYSEARCA:RTH) With Black Friday looming, often overlooked RTH will be stepping into the spotlight. One of the year’s top-performing retail/discretionary ETFs has fallen on hard times in recent weeks, sliding from $46 to the $43 area.
Exposure to e-commerce names is partly to blame, but three stocks will chart RTH’s near-term course: Wal-Mart Stores, Inc. (NYSE:WMT), The Home Depot, Inc. (NYSE:HD) and Amazon.com, Inc. (NASDAQ:AMZN). That trio represents a third of the ETF’s weight.
iShares Dow Jones US Home Const. (NYSEARCA:ITB) Few sector funds have been able to keep pace with the iShares Dow Jones US Home Construction Index Fund and the rival SPDR S&P Homebuilders (NYSEARCA:XHB) this year. In the case of ITB, the fund has surged a jaw-dropping 65.1 percent year-to-date. That is nice, but this is a “what have you done for me lately” kind of of world and what ITB has done lately is put bulls the ringer.
ITB is off 3.7 percent in the past week and has fallen through critical support as well as its 50-day moving average. Buyers need to step in soon to save ITB or the ETF could incur downside of another eight to 10 percent.
This article was originally written by The ETF Professor, and posted on Benzinga.