A rising tide lifts all boats, and most stocks climb in a bull
market. But some areas of the market deserve more attention
because they reflect actual demand in the economy and investor
Here's an overview of five key ETFs that can help you gauge
the market's health. Some market strategists say their
underperformance of the S&P 500 this year doesn't bode well
iPath DJ-UBS Copper ETN
): Known as the metal with a Ph.D. in economics, Dr. Copper shows
industrial demand for a key ingredient in all aspects of the
global economy, from consumer gadgets to infrastructure.
It revealed the global economy had turned a corner in January
2009, when it started rebounding from its bear-market bottom. It
started an uptrend ahead of the stock market, which bottomed in
The red metal has traded almost flat this year, while the
S&P 500 advanced 11.5%. JJC is trading 20% below its 52-week
high, while the S&P 500 is just 2 percentage points from
recovering that high.
JJC has been in a downtrend since January 2011 and trades
below its 200-day moving average, which is very bearish.
"Copper prices could well rally in late 2012, as China's
demand revs up again," Patricia Mohr, a commodities analyst with
Scotiabank, wrote in a research report released June 26.
As the world's largest copper consumer, the People's Republic
accounted for 40% of global demand in 2011.
iSharesDow Jones Transportation Average
): IYT holds 21 stocks, including railroads, trucking and
airlines with large stakes inUnion Pacific (
) andUnited Parcel Service (
) -- barometers of business health. Dow Theory contends that
transportation and industrial stocks need to move together to
confirm a market's trend.
UPS, the world's largest package-delivery and global
supply-chain management firm, missed second-quarter estimates and
cut its outlook for the second half of the year, citing the
European recession, consumer pessimism and global
Its largest competitor, FedEx, said it was cutting costs to
grow margins amid lower shipping volume and demand for its
IYT has barely recovered its 200-day line and has returned a
mere 2.89% year to date.
iShares Russell 2000Index
(IWM): IWM tracks small caps, which grow faster but are riskier
than their large and midsize peers.
They tend to lead bull markets when investor appetite for risk
Their underperformance suggests investors are risk-averse and
aren't betting on growth. IWM has climbed 8.41% this year,
lagging the S&P by 3.13 percentage points.
iShares Barclays 20+Year Treasury Bond
(TLT): Bonds tend to move in the opposite direction of the stock
market. Investor preference for bonds now shows risk aversion and
a disdain for stocks.
TLT has returned 7.45% year to date and a whopping 38.50% in
the past year as interest rates dropped to record lows.
Investors have put $223.2 billion into bond funds this year as
of July 25, while taking $31.4 billion out of equity funds,
according to EPFR Global. Bond inflow nearly doubled from a year
iSharesMSCI Germany Index
(EWG): The fiscally responsible country suffers the ills of its
eurozone debtors -- Greece, Spain and Italy.
"Unexpectedly, Moody's altered its outlook of the German
economy from neutral to negative," noted Gary Gordon, president
of Pacific Park Financial in Aliso Viejo, Calif. "If the
fourth-largest economy in the world crumbles, then a European
recession may eventually go global."
EWG has returned 8.23% year to date, but has been in a
downtrend since March 2011. It trades below its 200-day moving
This indicates investors don't expect Germany to rebound
quickly, Gordon wrote.