Social media and solar ETFs both cover areas of the market engaged in high growth expansion through very different means. While these two sectors don’t often experience direct correlation, they are both home to fast moving stocks with interesting price trends.
Primarily because they look like they should be avoided in the current market environment.
In 2013, the Guggenheim Solar ETF (TAN) and Global X Social Media ETF (SOCL) were two big hits among growth investors looking to capitalize on home runs in their portfolios. However, despite continued broad market strength in 2014, these ETFs have developed weak relative price patterns.
Solar Softness
TAN invests in 29 global solar stocks, with well-known companies such as First Solar Inc (FSLR) and SolarCity Corp (SCTY) in the top holdings. A look at a 2-year chart shows just how weak this ETF has been since peaking in early 2014.
Solar ETF (TAN) Stock Chart
Right now TAN is clinging to a key support level near $32.50 that it has tested multiple times over the last two years. A break below that level would likely lead to another wave of selling throughout the solar complex. In addition, TAN is currently trading below its 50 and 200-day moving averages, which is a negative sign for technical traders.
Social Awkwardness
SOCL is another niche industry-focused ETF that tracks 36 global companies engages in social media, networking, and other web-based applications. Facebook Inc (FB), LinkedIn Corp (LNKD), and Twitter Inc (TWTR) make up just some of the top holdings in this fund.
A similar weak chart pattern has plagued SOCL since hitting a high at the beginning of last year. Despite multiple attempts at establishing some positive momentum, this ETF has been unable to avoid inching towards its May lows. Both of its primary moving averages are now sloping downward as well.
Social Media ETF (TAN) Daily Chart
In addition, the social media space has struggled to find uniformity among its participants. Facebook has been one of the stronger brands, while companies such as Twitter have struggled in recent months. This fractured price structure may lend itself to trading individual stocks over broad-based ETFs depending on your risk tolerance and investing preferences.
The Bottom Line
Those with longer time horizons and more aggressive risk tolerances may feel that these sectors offer a compelling value proposition versus broad-based market indices trading near all-time highs. However, I would be hesitant to add to these ETFs without seeing more positive signs of stabilization and a return of relative strength.
They have both shown a penchant for being strong momentum candidates under the right circumstances, but need a clear upward trend to take hold and restore confidence.
Follow Dave on Twitter: @fabiancapital
No position in any of the securities mentioned at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
