It's OK to Feel Bullish but It's Vital to Be Selective, as These ETFs Show

We all know it has been a good week for the bulls.

The SPDR S&P 500 ETF (SPY) is up about 2.3%, the Invesco QQQ Trust (QQQ) has tacked on about 3.8% and the iShares Russell 2000 ETF (IWM) has popped an impressive 4.65%. With these types of stock market gains, along with the recent employment report and Thursday’s so-so Consumer Price Index (CPI) data, I suppose I shouldn’t be surprised that non-trading friends and family are beginning to call about stocks. But here’s the thing: Despite some of the bullish commentary I’m starting to read, it still seems like we need to be pretty selective when buying stuff.

Let’s keep this super high level and use ETFs instead of individual stocks.

In one of the long-term accounts I manage for my family, I only invest long and stick to ETFs. It’s pretty dull, to be honest. But a glance at the performance tells me quickly which areas are outperforming.

The best-performing ETF, or the one closest to making a new all-time high, is the Vanguard Value ETF (VTV) . This ETF is a mere 4.5% away from a new all-time closing high, and that’s pretty impressive given what we’ve endured over the past 12 months.

Then there’s the iShares S&P Small-Cap 600 Value ETF (IJS) . This ETF is down about 7.5% over the past 12 months and off around 12.5% from its all-time high. Between the IJS and VTV, I can see that investors are comfortable with value over a higher time frame. But let’s face it; we’ve known that based on the relative outperformance of dividend growth stocks.

What if we reduce our time frame and only look at the past six months or so?

I’ve been keeping close tabs on how the indexes and leading stocks react as they approach their mid-August 2022 swing highs and early December 2022 highs. While no one will characterize either the Vanguard FTSE Developed Markets Index Fund ETF (VEA) or iShares MSCI EAFE Small-Cap ETF (SCZ) as a leading ETF, it’s interesting to see that both of these international-focused ETFs are testing or above their mid-August and early December 2022 highs. Most short-term traders won’t care that international stocks are performing well, but for the investors in the audience, it’s worth paying attention to them.

As you would expect, the worst-performing ETFs are those focused on technology. Not only are these ETFs beneath their August and December 2022 swing highs, but they also can’t seem to generate enough momentum to stay about their short-term moving averages for more than a few days.

So, are we in a bull market or a bear market?

As you already know, whether we’re in a bull or bear market depends on what you’re looking at in the way of time frames and investment types. Based on the ETFs I’m invested in, I believe international stocks are on the mend and likely to trend higher over the long term. If push comes to shove, I suppose I’d say that group is closest to being in a new bull market. But on the value side of the equation, ETFs such as VTV and IJS appear to be in 12-plus month consolidation patterns. Technology is still bearish, but we’ll find out in February if fourth-quarter earnings expectations are crummy enough that buyers finally can be enticed to re-engage.

Suppose you’re looking for the more active bulls. In that case, a fair few of them appear to be hiding out in the small and mid-cap semiconductor stocks, the homebuilders, the oil service space and inside the industrial metals complex (copper/steel/aluminum).