ETF Edge #21
Originally posted on: thepensivenugget.com
The market has lost a good amount of upside momentum over the past few days.
Is the bounce fading? Or is everyone just taking a collective breath? Either way, watch for breakouts!
Is The Bounce Fading? Or Are Markets Just Taking A Breath?
- The bounce, bear market rally, or whatever you want to call it, has slowed markedly in recent days, with most markets starting to trade sideways - watch for breakouts!
- SPY and QQQ are both consolidating, as IWM tries to test resistance
- XLRE, XLF, XLY spent the last week trading sideways; even XLP’s heroic rally has stalled
- 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 moves sideways too, but a move to test its all time highs in April remains possible
- Fixed Income ETFs continue to move together, as their rallies begin to reverse
- LQD, HYG, and EMB are all moving in a bearish direction again
- TLT is trying to find a bottom as it approaches another test of critical support
Trading Ideas - Performance
Trading Ideas - Commentary
- Re-entered short position in EMB as it broke below short term support at 90
- Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions
- Entered a straddle on XLU at a strike of 72, expiry Sep ‘22
- Position will be profitable if XLU makes a decisive move in either direction
- Shorts in LQD and HYG stopped out as both spiked higher over the end of May, for respective returns of 4.93% and 3.33%
- Looking to enter short positions on pullbacks, possibly in:
- IWM
- EEM
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 have seen their recent rallies go into reverse, are their short term trends realigning 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 consolidate… SPY
- SPY is consolidating beneath major resistance at 416
- A decisive break above could see the rally extend to 429.5, and a failure to do so could see a fall to support ~384
Tech stocks also consolidate… QQQ
- QQQ hasn’t really tested 316 resistance, and has started to trade sideways between 300–316
- A break above could see a move to test 340, if not, support lies ~280
As US small caps approach major resistance… IWM
- US small caps have managed to push a little higher, and are close to testing major resistance at 191
- A break above could see a rally to the 204–208 region, failing which support lies between 169–172
Financials also start to trade sideways… XLF
- XLF’s bounce has started to fizzle out
- It has not been able to move higher to test resistance ~36, instead trading sideways in the 35 region
- Major support lies down at 32.2
Energy stocks blast higher (again)… XLE
- XLE keeps moving higher, and is now trading slightly above 89 resistance, with an eye still on 2015’s high at 101
- Oil prices have rallied over the past week as well, and are trading ~120
Industrials are stuck in the middle… XLI
- Industrials remain above support at 94, but have yet to test resistance at 97.8
- XLI’s future direction will depend on which side of this range it breaks out from
- Major support lies at the bottom end of its bearish channel ~89
As Utilities hold steady… XLU
- XLU remains firmly above 72.5 support (which it broke out from 2 weeks ago)
- A retest of its all time highs at 77 remains possible with the trend still very bullish
- Major support lies ~70 and 63
Consumer staples’ rally stalls… XLP
- XLP’s heroic rally has stalled, as it spent the last week trading sideways around 74 resistance
- It has yet to recover to its pre-plummet level at 76
- Major support lies at 70
As Consumer discretionary also moves sideways… XLY
- XLY spent the last week trading sideways, and remains between support at 149.5 and resistance at 161.3
- Major support lies ~139, and the trend remains very bearish
Real estate stocks consolidate below key resistance… XLRE
- XLRE failed to move decisively above key resistance at 44.4, and is now consolidating just below
- Another breakout to the upside remains possible, which could see a rally to the mid 46 region, if not, support lies ~41
European equities grind higher… EZU
- EZU has managed to rally back to test resistance ~42, 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 has also rallied back to test resistance at the bottom of its previous bearish channel ~43
- A break above could see a move to test resistance at 46.7
- Support lies at 39, a break of which could open the door to a fall to ~32
And Chinese Large Caps rally… FXI
- FXI pushed higher over the last week, and is quickly approaching key resistance at 33.8
- It could be forming a wide range between 33.8 and major support at 26.2, although the trend remains bearish
Investment grade corporate debt turns down again… LQD
- LQD’s strong rally reversed after hitting 115 resistance
- Major support lies at 110, with its broader trend still very bearish, a fall to 105 (2020’s COVID low) cannot be discounted
High yield corporate debt too… HYG
- HYG’s rally has also gone into reverse after coming close to, but failing to test resistance at 80.5
- It is currently testing support at ~78. 2020’s COVID low stands at 67.5
EM sovereign bonds fail to breakout of their channel… EMB
- EMB failed to break out of its bearish channel, and looks to be in the process of reversing its recent rally
- It remains in a very bearish trend, and a test of its 2020 COVID low ~85 is still possible
As USTs remain in their range… TLT
- TLT is heading back down to test critical support ~111, as 10y yields move back above 3%
- It remains range bound between ~111 and 118.6, and could be in the process of forming a bottom
Comments