Dorsey: Stick With Gulf States & US For Structural Bull Market

September 09, 2014

Tom Dorsey is one of the leading technical researchers of our time. He is the president and co-founder of Dorsey, Wright & Associates, a registered investment advisory firm based in Richmond, Va., that specializes in point and figure charting, relative strength and other technical analysis. He has authored several books, including "Point & Figure Charting," "Thriving as a Broker in the 21st Century" and "Tom Dorsey's Trading Tips."

Dorsey recently sat down with to discuss markets exhibiting the greatest strength, according to his indicators. He tells us his favorite emerging markets and mentions a few fixed income ETFs gaining momentum. For those contrarian investors hunting for value, he points out a few ETFs at the bottom of his list. The First Trust Dorsey Wright Focus 5 ETF (FV) has been a huge success since its launch in March 2014. Tell me about the newly launched First Trust Dorsey Wright International Focus 5 ETF (IFV), which focuses on international markets.
Tom Dorsey: Before we get to the international, let's talk about FV and one of the reasons that it's considered the best start of any ETF in 2014. We maintain a number of models for most of the ETF providers. We probably have 82 different models on our system designed for the professional. They can use a model that can be put into a portfolio, then it's automatically run for them. They're notified by email whenever a change takes place in the portfolio.

FV was one of those models. It was the First Trust Focus Five model that had been running for years on our system, and it had one of the best track records of any model that we had. I would say we probably raised over $4.5 billion in those models themselves with advisors putting those ETFs into their customers' portfolios. FV can only pull sector funds that are provided by First Trust ETFs. The current five are biotech, health care, Internet, consumer staples and discretionary. Are there any other sectors high on your model that couldn't make it into FV simply because First Trust doesn't offer that sector?
Dorsey: I'll tell you, the way that First Trust put their AlphaDex together, I really like that fundamental way they do it. That's one of the reasons that they have done so well.

But yes, there are places—we have ranked No. 1, DWA aerospace, and No. 2 is biomedics. Textiles is No. 3. Textiles have done really great this year. The DWA financials are ranked up top there. So there are some sectors that are ranked very high that we don't have the ability to go in there. Getting back to IFV, is there any difference in methodology from FV, or is it exactly the same but with your pool of ETFs from the international space?
Dorsey: Exactly that. It's just here we're looking at both developed markets and emerging markets. Frontier can be part of it. So it will move in the direction of which part of the international world you should be in, where the momentum is, whereas the PowerShares DWA Emerging Markets Momentum ETF (PIE | C-37) is only emerging markets, and the PowerShares DWA Developed Markets Momentum ETF (PIZ | C-42) is only developed markets. This one will go where it needs to go. Let's talk about emerging markets. China's been the big performer in recent months, especially mainland, A-shares. Are you seeing any China ETFs moving up on your indicators?
Dorsey: Yes, there are some. I'll tell you, this Deutsche X-Trackers Harvest CSI 300 China A-shares ETF (ASHR | D-52), I like that. The chart looks very, very good here. I would have no problem buying that, and I would prefer to give them a pull back to around 23 or 24. But I have no problem with that. That's a great-looking chart.

But when you break it down into something more granular, the WisdomTree China Dividend ex-Financials ETF (CHXF | C-38) looks great. The EGShares China Infrastructure ETF (CHXX | D-32) looks good also. There are other Chinese ETFs that I would say are kind of muddled; they're in between.

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