Gary Gordon of the ETF Expert states that the sector still remains weak because of the ongoing issues with the credit crisis, toxic assets, TARP, residential and commercial real estate defaults, foreclosures and subprime, just to name a few. (More on the challenges faced by financials).

Banks continue to fail in record numbers.  To prevent this from happening again, regulators are pushing for tougher changes in U.S. financial regulations, as the Senate’s top banking legislator on Tuesday proposed a new super-cop to police banks, a systemic risk agency and strong consumer protections, reports Kevin Drawbaugh of Reuters. At the end of the day, this new policy would create a single bank regulator and eliminate two. (More on financials).

Only time will tell if the proposed regulation passes and the sector benefits, but as of now, some think financials are weak.  The SPDR Select Sector Fund Financial (NYSEArca: XLF) is up 19.4%  year-to-date.

If you’re itching to play in the sector, mind the trend lines and have your strategy in place in case hiccups hit the funds. (How to follow trends).

For more stories on financials, visit our financial category.

Kevin Grewal contributed to this article.

The silver lining to the recent bear market is that painful experiences remain in our memories for a long time and provide lessons for the future, says Bob Frick for Kiplinger. This time around, when you are allocating your portfolio, also be sure to have a solid investment strategy implemented. (Are you in the rally?)

One of the keys to investing success is to master your emotions, and it’s one of the hardest things a person can do. If hope, anxiety and regret are feelings that have left you with a shattered portfolio, there is a better way to pick yourself up again. (Did human nature put your portfolio through the ringer this past market pullback?)

Why have a strategy? A strategy will take the place of your stomach and your heart. With enough practice, your strategy will be your emotional trump card. When the uptrend is there, a simple, sound strategy will have you in the markets. When the trend peters out, your strategy will tell you it’s time to sell.

Our strategy is the 200-day moving average; when a position is above the line, it’s a buy signal. When a position dips below, it’s a sell signal. By having a firm stop-loss point, you put a cap on your losses instead of riding a position to the floor in hopes that it will “come back.” (Ten ways to become a better investor).

ETFs are an ideal tool for this strategy, too: the fees are more reasonable, you can trade all day like a stock, there are no early redemption fees and you have total transparency.

The ETF Trend Following Playbook explains in more detail how the strategy works.

For more stories about trend following, visit our trend following category.

At the end of August, there was $674 billion in 858 U.S.- listed ETFs. One of the main reasons they’ve exploded in popularity is because they offer many investor-friendly characteristics:

• They offer transparency, so you know what you own at all times.
• They’re flexible and can be traded intraday like a stock.
• They offer instant diversification; instead of picking one stock, an ETF will give you exposure to dozens or hundreds.
• On average, their fees are lower than those of mutual funds.
• They enable you to reach “hot” markets such as currencies, commodities and developing countries.

This doesn’t mean that ETFs don’t come with drawbacks, says John Spence at MarketWatch. That means that there are certain things you should consider while you decide to buy. Here’s Spence’s list:

• Consider the overall costs of buying and selling ETFs – not just the expense ratio on the fund itself.
• Check out the tracking error and liquidity by examining the bid-ask spreads and the fund’s trading volume.
• Consider the sector allocations in your stock ETFs; sectors typically can drive long-term performance.
• Leveraged and inverse ETFs require special knowledge and understanding. They’re not for everyone. Learn about how they work by reading our special report.
• Bond ETFs also require examination, because tracking error and bid-ask spreads can be wider than in stock ETFs. (Why it happens).

There are many ways to examine ETFs – here’s a list of more things you can do. Most important of all, however, is to have a strategy. We monitor the 200-day moving average as a signal of when to enter the markets and when to exit. You can read more about the strategy in The ETF Trend Following Playbook.

For more stories on ETF strategy, visit our trend following category.

Kevin Grewal contributed to this article.

One expert says the spot prices don’t matter so much as the long-term trend lines. Does that sound familiar?

According to David Frum on MarketPlace public radio, the spot price is simply what something is trading for at the moment. The overall trend is what truly matters.

The favored hedge of the moment is gold, which has spiked to record prices. To Frum, the record price is a selling indicator. We maintain instead that you can’t fight the trend – when it’s up, it’s up. When it’s heading south, it’s time to employ an exit strategy. (Why gold could go higher).

The markets have seen their fair share of “irrational exuberance” as long as the notion of investing has been around, leading to bubbles. (Keeping your exuberance tempered).

The best defense to fight the possibility of losses is to enter into the market with a strategy. By following a strategy, you can avoid market bubbles, panic selling or herd mentality buying. We watch the 200-day moving average. When a position moves above, we buy; when it drops below, we sell.  (Why does trend following make sense?)

For more guidance on building a strategy and implementing it, check out the The ETF Trend Following Playbook for more advice.

For more stories about trend following, visit our trend following category.

New regulatory actions in the futures-backed commodities market could pose problems for a variety of popular oil ETFs, including the largest one – United States Oil (NYSEArca: USO), writes Don Dion for TheStreet. Other futures-backed oil ETFs that may be affected by position limits include iPath S&P GSCI Crude Oil Ttl Ret Idx ETN (NYSEArca: OIL) and United States 12 Month Oil (NYSEArca: USL). (What does the future hold?).

In the beginning of the year, the CFTC made inquiries about the impact of USO’s impact on the oil market after prices rushed to a record $147.27 in July 2008 before plummeting to near $30 months later. The providers of USO responded by expanding the period in which it rolled its contracts and reducing its position in the underlying benchmark. USO escaped further notice as investor interest turned from oil to other investments, most notably  United States Natural Gas (NYSEArca: UNG).

Recent restructuring of PowerShares DB Commodity Index Tracking (NYSEArca: DBC) portends possible regulatory action that could result in size restrictions on all futures-based oil ETFs. DBC’s managers restructured its oil weightings and also included oil futures contracts traded in London to avoid CFTC restrictions. The managers of UNG have been turning to the over-the-counter swaps markets to get some exposure. We could see more of these types of things as regulations come forward. (What are swaps?)

Assets in long-only commodity ETFs don’t appear to have been dented by the increased regulatory oversight of futures-based funds. At the end of October, assets in the funds stood at nearly $65 billion – a 12% increase from August.

Dion suggests that novice traders steer clear of oil funds until regulatory revisions are set and those who purchase shares should keep the size of the investment in check. Another option to consider for investors leery of futures-based funds are ETFs that hold shares of oil companies. (How to invest in oil using ETFs).

When investing in oil or commodity ETFs, it is important to have a strategy in place. For a more detailed explanation of using a trend following strategy, take a look at The ETF Trend Following Playbook.

For more information on oil, visit our oil category.

Max Chen contributed to this article.

For every portfolio need, there is an ETF to fill it. Whether you’re looking in a niche area of the market or need an all-encompassing broad-based fund. Here is a simple breakdown from Aaron Levitt on Investopedia to help get you started.

Theme Funds: Some ETFs track an index centered around a theme or niche of the market, ranging from small-caps to solar energy, and everything in between. Examples of this include Claymore Global Solar Energy (NYSEArca:TAN) or Vanguard Small Cap ETF (NYSEArca:VB).

Broad-based “simple” ETFs: Broad-based funds are all-encompassing fund that give total exposure to a segment of the market. There are plenty of broad-based ETFs that can help get any portfolio on the right track. For instance, SPDR S&P 500 (NYSEArca: SPY) and Vanguard Total Stock Market (NYSEArca: VTI) can get you started. (Four rules for ETF investing).

Bonds: This area should not be forgotten, and can add the right amount of diversification from the equity market. Vanguard Total Bond Market (NYSEArca: BND) is a broad-based bond ETF that covers most bases. (How bonds are overcoming challenges).

Extras: Once the core of your portfolio is in place, you can play around with the extras and the niche or fancy funds. iShares S&P North American Natural Resources (NYSEArca: IGE) is a good example of this. (Do alternative ETFs belong in your portfolio?)

Becoming a good trader: Being a good trader involves education, time, patience, trial and error and a willingness to examine your good moves along with the bad ones. (10 tips to improve your ETF game).

A Plan: Last, but not least, you need a plan for investing. Assess your risk, your time horizon and your strategy. We use a trend following strategy, which you can read about in The ETF Trend Following Playbook.

For more stories about ETFs, visit our ETF 101 category.

The near-term price direction for commodity shares and ETFs are being dictated by the dollar, which has many fearing that prices have entered a bubble. A bubble is a rapid surge in prices, followed by a steep drop-off, most recently witnessed in oil prices in 2008 and real estate for much of the aughts. (How bubbles form).

Andea Hotter for The Wall Street Journal reports that gains for commodity prices are good this year: copper prices have doubled; zinc is at 18-month highs; cocoa is at 30-year highs; oil is at one-year highs; and sugar is at 26-year highs.

Are commodities heading into a bubble?

• Some analysts worry that China has pumped so much money into its stimulus efforts that any stabilization could have an impact on commodity prices.
• Other analysts feel that until commodity fundamentals improve, the dollar will remain the driver of prices. If the Federal Reserve cuts back on liquidity, though, some expect a “brutal” impact on prices.
• Jason Busch at Spend Matters has some signs of a commodity bust to be on the lookout for.

How can you spare yourself the wrath of a bursting bubble? Employ a trend following strategy. By watching trends and using the 200-day moving average, you will take emotions that usually accompany bubbles out of the picture. More on trend following can be found in The ETF Trend Following Playbook.

For more stories about trend following, visit our trend following category.

The global economic recovery is not yet a firm one, and any poor data from the United States or China might prompt Hong Kong’s investors to forgo risk in favor of safety, remarks Roland Lim for channelnewsasia. Alex Wong, director of Ample Capital, estimates that a 30% correction could occur if there is a flight to safety.

Hong Kong’s Hang Seng Index has jumped about 50% year-to-date, and the index constituents are trading at 18 times price earnings. The 20-year average is 14 to 15 times. According to a study conducted by JP Morgan (NYSE: JPM) Asset Management, ar0und 60% of participants believe the local stock market is still volatile.

Hong Kong Chief Executive Donald Tsang may set out plans to develop additional industries to help Hong Kong diversify from its two major industries, finance and trade, reports Sophie Leung for Bloomberg. New industries could include medical services, education, cultural and creative industries, environmental protection, innovative science and technology, and inspection and certification. (Go here for more stories on the Asian region).

If a market correction occurs in Hong Kong, be sure to have an exit strategy to protect yourself on the downside. The ETF Trend Following Playbook has more on ETF strategy.

For more information on China, visit our China category.

• iShares MSCI Hong Kong Index (NYSEArca: EWH): up 59.1% year-to-date

Max Chen contributed to this article.

Most investors know that they should let their emotions drive investment decisions, but unfortunately, it’s in our DNA.

Kent Grealish of Index Universe states that we are psychologically hard-wired to buy high and sell low and that overconfidence, or the thought that one can outperform the market, can override all common sense no matter how much we know.

Grealish espouses the benefits of indexing as a strategy that can be used to control emotional decision making. Most ETFs track an index and don’t attempt to beat the market, thereby addressing those things that can be controlled, such as decision-making that’s based on emotions.

Trend following is another way to manage emotions. (Read about how to follow trends here, and check out our new book). By having a strict but simple discipline when it comes to investing, investors can give themselves the chance to be in for any potential long-term uptrend and out before they’ve ridden a position to the floor. (Our strategy was recently featured in Investor’s Business Daily; read about it here).

By combining both ETFs with a strategy of trend following, investors can be sure they’re leaving their emotions at the door.

For more stories on trend following, visit our trend following category.

Kevin Grewal contributed to this article.