Gold Medal Worthy?

Every four years when the Winter Olympics come around, I can't help but stay glued to the television and watch with awe the extraordinary athleticism, agility, speed, and calculated recklessness on display. It's astounding to think that out of the thousands of athletes that compete in these sports, the ones who end up on the medal podium are the ‘cream of the crop’ or, ‘world class’.
The same can be said about a number of stocks and ETFs currently – they are out performing their peers. Much like an Olympic athlete who has to compete against others in his/ her respective event so too do investments. Think about it for a second; there are thousands of stocks that are traded throughout the world, all of these stocks have to compete against their peers and the overall market. So when determining which stock or ETF is worthy of that coveted gold medal – i.e. a place in the portfolio -- it's best to start by putting the stock or ETF through a relative strength competition so that your portfolio is populated with gold, silver & bronze ‘medalists’ and not the has-beens. This is best done by analyzing trend and relative strength.
Thus far a snapshot of returns for the major equity benchmarks suggests a dearth of medals, with a rather tepid start to the year. With eight weeks of 2010 already recorded history, the S&P 500 (SPX) is down just 0.95%, while the S&P Equal-weighted Index is up 0.72%. These numbers do not tell the entire story, since over the duration of those 8 weeks the market experienced some rather defined phases; beginning with a strong push to new highs at the start of the year, which fizzled in mid-January. From that point the overall markets regressed to mean, and then beyond, falling 7-10% based on the major equity benchmarks. Subsequently, the markets have fought back to essentially where they began the year. US Equities remain an emphasized asset class while non-emerging market international has fallen from favor. The general trend characteristics remain positive, but risk levels are elevated. This has caused me to take a ‘tapping the brakes’ approach with respect to Equity exposure.

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