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[LearningMarkets]

Small-Cap ETFs Like IJS and IJT are the Place to Be

S. Wade Hansen

Small-cap stocks are the place to be right now as the stock market passes the one-year anniversary of the sub-prime meltdown and the beginning of the credit crisis. According to relative strength measurements during the past month, if you are looking for the best place to weather the storm in the U.S. stock market right now, small-cap value stocks---as represented by the iShares S&P SmallCap 600 Value Index Fund (IJS)---and small-cap growth stocks---as represented by the iShares S&P SmallCap 600 Growth Index Fund (IJT)---are showing the most strength.

Relative strength is a measurement that tells you which stock, mutual fund or ETF is stronger when compared with another stock, mutual fund or ETF. It's like having an arm-wrestling match between each of the investments you are looking at and seeing which one comes out on top.

Knowing which investment is the strongest today is useful for you as an investor because the investments that are strong today tend to be strong tomorrow---unless something happens to weaken them. It's just like Newton's first law of motion, which states that every object in a state of motion tends to remain in that state of motion unless an external force is applied to it.

So why do I say small-cap stocks are the place to be right now? Well, let me walk you through the process.

I wanted to know, based on relative strength measurements, which market-cap style group was the best place to be right now. Should I be in large-cap value, mid-cap growth or some other group? To answer my question, I decided to evaluate the following ETFs, which represent the six major market-cap style groups:

- The iShares S&P SmallCap 600 Value Index Fund (IJS)
- The iShares S&P MidCap 400 Value Index Fund (IJJ)
- The iShares S&P 500 [LargeCap] Value Index Fund (IVE)
- The iShares S&P SmallCap 600 Growth Index Fund (IJT)
- The iShares S&P MidCap 400 Growth Index Fund (IJK)
- The iShares S&P 500 [LargeCap] Growth Index Fund (IVW)

While there are many different methods for calculating relative strength, the simplest and most widely used seems to be the Normalized Rate of Change method, so I decided to use it for this illustration. To calculate relative strength using this method, all you have to do is follow these five easy steps:

For those steps, results and a lot more free education - see the whole article here: http://www.learningmarkets.com/index.php?option=com_content&view=article&id=345:small-cap-etfs-like-ijs-and-ijt-are-the-place-to-be&catid=35:finding-trades-stocks&Itemid=142

 

[LearningMarkets]

The yield curve & Investor Sentiment - Part One

The yield curve is something that analysts and professionals will track but is rarely talked about by smaller individual traders. This is a very important topic right now as the market is hearing echoes of the credit crisis of July 2007. There are some important differences between now and then and some of these differences are related to the yield curve and what it is telling us about investor sentiment. curve

The yield curve is a simple comparison of short term, mid term and long term bond yields. A bond's yield is how much it will return to you on an annualized basis from the time you purchase it until it matures. Typically the "curve" of yields means that you will be paid more for a long term bond and less for a short term one. This is because it is riskier to tie up your money for a long time than a shorter time frame. We can make pretty good estimates about what should happen in the next three months but no one knows what will happen over the next 30 years. That means that buyers will be paid a higher yield for the 30 year note than they will for the 13 week note. Long term buyers are being paid more to compensate for that uncertainty. For example, right now the yields on treasury notes looks like this.

13 Week - 1.645%
5 Year - 3.031%
10 Year - 3.782%
30 Year - 4.369%

The fact that the current yield curve looks "normal" is important and gives us some good information about investor expectations about the future. If short term bonds were paying a higher yield (which sometimes happens) we would draw very different conclusions about what traders think about the future. In the next section of this series we will talk about how the yield curve can give us guidance for the future and why it is telling us very different things today than it did in July 2007.
To see a video on this subject, click here: http://www.learningmarkets.com/inde...ne&catid=39:options-finding-trades&Itemid=148