ETFs For Sell In May And Go Away: Part II (FBT, XLU, SOXS)
Next Tuesday won't be just any old Tuesday. It's May 1 and the start of that new month brings with it the potential for the Wall Street phenomenon known as "Sell in May and go away." The six-month period of May through October is historically unkind to stocks, but following a decent week for stocks that saw the Dow Jones Industrial Average reclaim all of its April losses and turn modesty positive for the month, traders and investors might be feeling a tad too ebullient heading into May.
We don't want to rain on anyone's parade, but there is something to seasonal investing trends and it does pay to prepare for a potential May sell-off and some summertime bearishness.
Our last look at sell in May and go away candidates turned up several sector funds and a couple of commodities plays. Let's add to that list with more sell in May candidates right now. Caution: Not all will be sells or bearish plays.
First Trust NYSE Arca Biotech Index Fund (NYSE: FBT) A quick look at the chart of the First Trust NYSE Arca Biotech Index Fund, which is up about 10% in the past few weeks, might lead some to believe its inclusion on this list is as a short recommendation. That assumption is incorrect. The biotech group has been on fire this year and the time to get long biotech, on a historical basis, is in August.
IBB has more exposure to credible biotech takeover targets and that might be one reason the fund as sharply outperformed rivals such as the iShares Nasdaq Biotech ETF (Nasdaq: IBB) and the SPDR S&P Biotech ETF (NYSE: XBI) year-to-date.
ProShares UltraShort Silver (NYSE: ZSL) There is some risk to shorting silver in the May-October time frame not only because silver is notoriously volatile at anytime of the year, but also because Indian wedding season has been known to spark some short-term rallies in gold, which often lifts silver prices. Still, silver has shown a tendency to retreat starting in May and near-term upside in the iShares Silver Trust (NYSE: SLV) appears limited. Be advised ZSL will undergo a reverse split on May 10.
Utilities Select Sector SPDR (NYSE: XLU) Maybe it's because investors are not convinced it's time to warm up to high-beta fare once again. Or maybe it's because investors just want some yield (XLU yields close to 4%). Whatever the reasons, XLU has started to show some signs of life recently. Low-beta utilities typically start to perk in the middle of summer. Consider XLU before you take a bite of a Fourth of July hot dog.
Direxion Daily Semiconductor Bear 3X Shares (NYSE: SOXS) Whatever you do, don't make an investment out of SOXS. This ETF is a short-term trade and a nifty one for the summertime at that because semiconductor stocks often suffer from the summertime blues. The risk with SOXS, beyond the obvious risks presented by leveraged funds, is that the likes of Broadcom (Nasdaq: BRCM) and Qualcomm (Nasdaq: QCOM) could keep chugging higher as Apple (Nasdaq: AAPL) derivative plays.
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