Technology ETF May Be Safe Bet In Volatile Market

ETF Outlook for the Week of July 21, 2014

Last week geopolitical unrest around the globe threatened the bull market. The Malaysian Airline shooting and the Israeli ground attack on Gaza spooked markets and sent the SPDR S&P 500 ETF (NYSE:SPY) down more than one percent for the first time in more than three months.

The ETF snapped back with a one percent gain on Friday and closed out the week down 0.25 percent from an all-time closing high.


The Dubai stock market got hammered on Sunday, falling six percent in one day. This is the worst one-day fall since June 24 when the Dubai FMG Index lost 6.5 percent. A large construction firm, Arabtec Holding Company, led the market lower in both instances.

The ETF suffered a 20 percent pullback in June before rallying 16 percent in July through Fridays close. The long-term outlook for the country and the region remain high, but investors must be prepared for high volatility from week to week.

Related Link: Sell Off Creates ETF Buying Opportunity

iPath S&P 500 VIX Short-Term Futures ETF (NYSE:VXX)

The heavily traded ETF (44.3 million shares on Friday) spiked on Thursday by 9.8 percent as the CBOE Volatility Index (VIX) exploded for a gain of 32 percent. As the fear level eased Friday the ETF fell by 6.8 percent and ended the week with a loss of 1.45 percent. The trend for VXX has been down for years, and investors should not look at this product as a way to hedge against a sell off.

Since the beginning of 2012 the ETF is down 95 percent. There will be days when the VIX spikes but all investors, sans day traders, should not rely on gambling on the appropriate timing.

SPDR Technology ETF (NYSE:XLK)

The technology sector received a mention in Barrons this weekend about the valuation. Barron'snoted that the sector's price-to-earnings ratio and price-to-cash flow ratio are at the lowest level in 25 years relative to the S&P 500. This suggests the technology sector should outperform the overall market in the future.

XLK has had a solid year, up 10.4 percent and within a few pennies of a new 12-year high. Investors could use the ETF along with some of its peers to gain access to the entire sector.

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