ETF Edge #20
Originally posted on: thepensivenugget.com
Markets continue to bounce, especially in equities, but not all markets are bouncing equally.
Broader trends remain bearish, and macro conditions are weakening.
Focus on the weakest ETFs, and how they have been trending over the medium term.
The Bounce Continues. Focus On Broader Trends & Weakness
- US markets have a shortened trading week, but attention will remain on whether equities can continue their bounce
- The bounce/ bear market rally/ whatever you want to call it has caused some markets to move in a differentiated manner again, but will this last?
- QQQ is still looking bearish, even as SPY and IWM try to regain a bullish footing
- XLP is bouncing up and down like a yo-yo, even as XLY continues to look very weak
- XLI and XLF are still bouncing higher, although both remain in bearish channels
- Energy stocks (XLE) are still making new highs for the year, but with macro conditions deteriorating all over the world, how long can demand for oil remain at current levels?
- XLU looks to be making a move to test its all time highs set in April
- Fixed Income ETFs are bouncing higher together, but remain in very bearish medium term trends
- LQD, HYG, and EMB are either testing, or close to testing, key resistance levels
- TLT is trying to find a bottom
Trading Ideas - Performance
Trading Ideas - Commentary
- Entered a straddle on XLU at a strike of 72, expiry Sep ‘22
- Position will be profitable if XLU breaks out of its current 3 week old range
- Shorts in LQD and HYG stopped out as both spiked higher over the course of last week, for respective returns of 4.93% and 3.33%
- Looking to enter short positions on pullbacks, possibly in:
- IWM
- EMB
- EEM
- LQD
- HYG
Trading Ideas
- Long:
- A straddle on XLU is an increasingly interesting prospect
- Consolidating between critical support and all time highs, which way will it break?
- Straddles are expensive, but will allow us to profit as long as the market makes a decisive break
- With global macro conditions deteriorating, and energy prices remaining sky high, XLU will have to move in one direction or the other
- Short:
- IWM has broken out to the downside and remains vulnerable to further sell offs even as it bounces, given deteriorating macro conditions
- It is trading a fair distance away from the next major support level at 151.5, but it would be wise to wait for its short and medium term trends to realign
- LQD, HYG, EMB
- LQD, HYG, and EMB can still make a large move lower, possibly all the way to COVID 2020’s lows
- All three are currently bouncing hard with the rest of the markets, it would be wise to wait for short term trends to realign with medium term bearishness
- EEM recently broke below its well established bearish channel, and is looking very weak even as it bounces
- EZU and FXI are also good short candidates, as their charts still look bearish
- FXI is trickier to trade now as the Chinese government has verbally intervened once to halt the selloff in Chinese stocks
Broad US equities look to regain a bullish footing… SPY
- SPY has rallied out of its bearish channel, and is now testing major resistance in the region between 410–416
- A break here could see the rally extend to 429.5, with support ~384
While Tech continues to lag… QQQ
- QQQ broke above resistance at 300, and is moving to test the 316 level
- Tech stocks remain close to the bottom of their bearish channel, and are not looking that bullish, yet
- Support lies ~280
And US small caps push higher… IWM
- US small caps have rallied out of their bearish channel, and are closing in on resistance at 191
- A break above could see a move higher to the 204–208 region
- Support lies between 169–172
Financials are still bouncing… XLF
- XLF’s bounce has taken it above 35, with a move to test resistance in the 36–37 area now on the cards
- A break above could see XLF test the upper end of its bearish channel ~38, with major support down at 32.2
Energy stocks blast higher (again)… XLE
- XLE has shot higher again, and is now testing resistance at 89, with an eye on 2015’s high at 101
- Oil prices have rallied over the past week as well
Industrials also continue to bounce… XLI
- Industrials have moved above resistance at 94, as XLI rallies along with everything else
- The trend remains bearish, but a test of 97.8 is possible, with support at the bottom end of its bearish channel ~89
As Utilities break out of their short term range… XLU
- XLU has broken above 72.5, and out of its 3 week range
- A retest of its all time highs at 77 is now possible
- The trend remains very bullish, with major support ~70 and 63
Consumer staples stage a heroic comeback… XLP
- XLP rallied strongly after last week’s disastrous selloff
- It found support at 70 and has bounced back to 75, just shy of its pre-plummet level at 76
- Resistance lies in the 77 region
As Consumer discretionary keeps struggling… XLY
- XLY could only stage a slight rally after catching bids just below major support at 139.3
- It has rallied back into its bearish channel, and a test of resistance at 161.3 is possible
- The trend remains bearish, with new lows likely
Real estate stocks try to reclaim their uptrend… XLRE
- XLRE found support just above 41, and has rallied above key resistance at 44.4
- Resistance now lies at its previous uptrend ~45
- A break above this level could see a rally to the mid 46 region
European equities keep on rallying… EZU
- EZU has continued to rally, and could soon test resistance at 42.5 at the bottom of its old bearish channel
- It could also be in the process of forming a wide range, having established support at 37.8
- The broader trend remains very bearish
EM stocks too… EEM
- EEM also kept rallying, and is approaching resistance ~43 (early May highs and the bottom of its bearish channel)
- Support lies at 39, a break of which will open the door to a fall to ~32
But Chinese large caps trade sideways… FXI
- FXI has begun to trade sideways, and remains between key resistance at 33.8, and major support at 26.2
- The trend remains very bearish, and a move to 26.2 is still looking possible
Investment grade corporate debt shoots higher… LQD
- LQD has rallied strongly off its recent lows ~110, and is now testing resistance at 115
- Its broader trend is still very bearish, and a test of major support at 105 (2020’s COVID low) cannot be discounted
High yield corporate debt too… HYG
- HYG has shot above resistance at 78.35, and is now close to testing 80.5
- Support still lies at 73.3, below which stands 2020’s COVID lows at 67.5
EM sovereign bonds look to test key resistance… EMB
- EMB also shot higher, and is attempting to move out of its bearish channel, with an eye on testing key resistance at 93.8
- It remains in a very bearish trend, and a test of its 2020 COVID low ~85 is still possible
As USTs try to find a bottom… TLT
- TLT has moved above critical support ~111 and is currently trading just above 118.6 resistance
- 10y yields are still trading ~2.85%, and could be in the process of topping out (TLT bottoming)
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