ETF Watchlist for April 2, 2014

iShares Nasdaq Biotechnology (IBB)

Biotechnology has bounced smartly after a significant sell-off; IBB is up more than 5 percent in the past two trading days. There is some support now around the $240 level on IBB. Other biotechnology funds, such as SPDR Biotech (XBI) and First Trust Biotech (FBT) show similar bounces. The fund should continue rallying this week as long as the broader market stays flat to positive.


First Trust Dow Jones Internet (FDN)

Internet stocks bounced off a major support line at the end of last week. Though a bounce of less than 3 percent isn’t as significant as the jump in biotech, the technical picture for Internet stocks looks better. Many individual stocks such as Facebook (FB) and Google (GOOG) are also bouncing off important support levels.


Guggenheim Solar (TAN)

Solar stands a good chance of retaining its spot among the momentum leaders as the energy and utility sectors heat up. The chart of TAN is much more bullish than those of the biotech and Internet funds, with the March correction only reversing part of the gains on the year. The other two sectors could bounce and continue outperforming the market, but TAN’s is clearly the strongest of the group at the moment.


Consumer Discretionary Select Sector SPDR (XLY)

Consumer discretionary stocks were leaders in the post-2008 bull market, but they gave up that leadership in recent months. In 2014, relative to the S&P 500 Index, the consumer discretionary sector has underperformed. This week, the sector did lead the market higher as it rallied to new highs.  You will notice in the second chart, which shows the performance of XLY compared to SPDR S&P 500 (SPY) how this is a very small move compared to the weak relative performance this year. There could be an extended bounce here, but the consumer discretionary sector’s leading role in the bull market is most likely over.



iShares U.S. Oil & Gas Exploration & Production (IEO)

Energy stocks broke out to a new high in the past week, topping the previous mark set at the end of 2013. The sub-sectors are even stronger, with IEO and iShares U.S. Oil Equipment & Service (IEZ) breaking out from a period of underperformance.

Oil prices dipped this week, but IEO kept pushing higher. This is a good sign that investors are optimistic on the outlook for energy companies, and that point to energy possibly becoming a market leading sector in the coming weeks.


Utilities Select Sector SPDR (XLU)

Utilities have been the strongest sector in the S&P 500 Index this year and as the chart shows, there has been very little weakness except for a brief dip in February. Utilities have underperformed the S&P 500 through this bull market until this year, as the second chart shows. That chart also shows the sector has had several false rallies relative to the S&P 500 Index, with the sector returning to long-term under performance.

Utilities start outperforming in the middle to late stages of a bull market and given the age of the current market, the ascent of the utilities sector makes sense here. This is one sector to keep an eye on moving forward.



iShares U.S. Healthcare (IYH)

Healthcare is an interesting sector to watch; while biotechnology and pharmaceuticals sold off,   iShares U.S. Healthcare Providers (IHF) marched on to new highs. The latter move is partly due to the positive reports on Affordable Care Act sign-ups. This has kept the healthcare sector very strong despite weakness in some subsectors.

Healthcare has been a strong performer thanks to big rallies in pharma and biotech the past few years, which would argue for the sector giving up its leadership in 2014. If the providers can stay strong though, healthcare could challenge for market leadership for yet another year.



iShares MSCI Emerging Markets (EEM)

EEM remains in a pennant formation following a series of higher lows and lower highs, but this chart is heading for a resolution soon. The recent rally has been helped by higher oil prices, which is very bullish for Brazil and Russia, two of the largest emerging markets. If commodity prices rise, it is also bullish for China, as that country is the largest consumer of raw materials. That in turn is bullish for the global economy.

It’s still too early to say this is a bullish set-up, given that it wouldn’t take a big loss to swing the outlook to bearish, but the short-term trend is positive.


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