Time to Look at Small-Caps?

As the stock market pulled back from its October highs, there’s no denying that small cap stocks have been the worst place to be invested. The Russell 2000 lost roughly 7.2 percent in the month of November, compared to the S&P 500 return of negative 4.2 percent. Increasing worries of the slowdown of the U.S. economy, which could possibly lead to a recession, has pushed many investors into more solid large cap companies.

The first week of December has been a breath of fresh air for the market, and especially small-caps. As new economic data comes in, many pundits are starting to re-evaluate the possibility of escaping a recession. If this turns out to be the case, small-caps could get quite a boost, and could possibly outpace the much loved large cap arena.

A few ETF’s that are ideal for a small-cap bet would be iShares S&P SmallCap 600 Index fund (IJR), Vanguard Small Cap Index (VB), or iShares R2000 Index (IWM). For even more leverage you can look to the ProShares Ultra S&P SmallCap 600 (SAA) which returns twice the daily move for the S&P Small Cap 600.

The Amazon & Ebay ETF

As technology and internet stocks are being pushed my investing media punits as the new safe haven in the market, I went out looking for a good technology/internet ETF to fill the hole in my portfolio. As I looked around I realized that most of the tech ETF's are pretty much the same. The tried and true QQQQ, although extremely liquid, is just too diversified for me. Then on top of the big tech names, you add a bunch of biotech stocks, which are great and all, but thats not what I'm going for. I wanted something with more focus on the internet. Thats when I came across a little unknown gem called HHH, the Internet HOLDRS. With 70% of its holdings spread out in 3 stocks, it gives the volatility I'm looking for, but has some other holdings as padding. Here is the percentage breakdown: EBAY 26, YHOO 23, AMZN 21, TWX 15, ETFC 4, MFE 4, AMTD 3, PCLN 1, and a few other names. If you're looking to cover your EBAY, AMZN, YHOO base, this ETF could be a good match for you.

DIA Double Top Formation

The DIAMONDS Trust (AMEX:DIA) looks as though its putting in a double top after yesterday's action. If this slide continues, it looks like the first support would be in the 132 range. If this base line is breached, the diamonds could go as low as 127 before finding any strong support.

Helping fuel this recent selloff is the increase in the 10 year rate, profit taking for the 2nd Quarter, and worries about the CDO market and possible impact of large scale repricing.

QQQQ’s Distribution Days and Blow off Top

As the PowerShares QQQ (NasdaqGM:QQQQ) moves higher, there are some warning signs that the recent bull market in the ETF could be losing steam. Since May, there have been 9 “distribution days”, where the fund sold off on increasing volume. Subsequent positive moves to the upside have been lacking any exciting volume, showing a lack of conviction in the market that the current uptrend will continue.

Especially worrisome are the past three days of trading, where volume in the fund has been significantly lower than usual, while hitting new higher ranges. Adding to this the enormous gap that needs to be filled from a few days back, we could see a mini blow off top in the short term.

The ETF Explosion - Hot Commodities

Investors that have been watching the marketplace for ETF’s over the past few years notice one major transformation, which is choice. Increasingly ETF sponsors are rolling out more creative and desirable ETF’s other than just a traditional “index”. Some of the more innovative ETF’s available today include equal weighted funds, funds that automatically rebalance on a schedule, and the increasingly popular commodity funds. It’s no surprise that the demand is so large for commodity funds, given the broad-based surge in commodity prices across the board. Hedge funds, smaller investors, and even middle America is taking notice, and much like the latest real estate bull market, the little guy wants in.

The first commodity ETF to hit the market in late 2004 was the StreetTracks Gold Fund, traded under the ticker symbol (NYSE:GLD). At recent prices this fund holds net assets of over $6.5 billion, and shares trade at roughly 1/10th the spot price of gold. This fund makes it easy for smaller investors to invest, and speculate on price swings without buying physical bullion. Slow to gain widespread attention at first, this is now one of the most actively traded ETF’s on the market.

Recently launched by Barclays Global Investors, is the newest commodity ETF which tracks the spot price of silver. Trading under the ticker symbol (NYSE:SLV), and ten times the spot price of silver, this ETF is sure to gain a lot of attention. Leading up to the launch of the new ETF, spot prices for silver surged, anticipating a large demand in the silver market to back the new ETF shares.

One of the more interesting ETF’s to hit the market recently is the U.S. Oil Fund, sponsored by Victoria Bay Asset Management. The fund trades under the ticker (AMEX:USO), with the objective of mirroring the spot price of West Texas Intermediate light sweet crude. The fund primarily invests in energy futures contracts, options and other instruments to maintain maximum oil exposure. Given the recent surge in oil prices past $70 per barrel, this fund has certainly gained a lot of attention and is a favorite of traders and speculators who want to play oil without going through the futures market.

One of the more overlooked questions that seems to be lingering about these commodity ETF’s, is “Are they good for the market?” Do these new ETF’s really track the supply and demand of these commodities, or are they now introducing a new whirlwind of demand forcing prices ever higher? Since these ETF shares must be backed by assets, when a large amount of money wants to move into the fund, more shares must be created in order to maintain an accurate share price. Once the new shares are created the fund can go into the market and back those shares with physical gold. Given the billions of dollars that have been moving into various commodity based funds, one has to wonder how much of the recent gains are actually caused by the ETF’s themselves.