ETF Watchlist for April 30, 2014

Midway through the week, the focus is still on the Dow Jones Industrial Average. Its historical closing high is 16,576 and it comes into Wednesday trading a stone’s throw away from that record once again.

iShares Nasdaq Biotechnology (IBB)

Biotechnology shares had a scare on Monday as bears raided the weakest sectors once again. The candlestick chart below shows IBB broke through its 200-day moving average intraday before bouncing and moving higher on Tuesday.

IBB didn’t break its prior low and instead formed a higher support level. While there are early indications that trading in this sector may be volatile today, IBB’s rebound on Tuesday is a positive indication, and evidence that the sector is turning a corner.


Global X Social Media (SOCL)

Social media and Internet stocks did not fare as well over the past week. As the chart below shows, social media shares reached a new low on Monday, as did Internet ETFs. This is not a good sign for the sector; it is likely to lag if the market rallies and it could see big losses if the stock market sells off again.

Many firms in the social media and Internet space have extremely high P/E ratios. In weak markets, stocks that rely on optimism are hurt the most when investors become fearful. Twitter, in particular, released its second earnings results last night and has social media investors concerned. Some commentators, however, believe that Twitter may still achieve the type of universal adoption characterized by Facebook. That said, with the broader market appearing to move higher, these stocks could rebound strongly.

LinkedIn (LNKD) will also report earnings this week.


SPDR Consumer Discretionary (XLY)

At the start of the year, we were looking for the consumer discretionary sector to mean revert after 5 years of outperformance. Thus far, that prediction has held true. Consumer discretionary is the only S&P 500 sector that is down for the year. Highlighting the weakness in the sector is Amazon (AMZN), which tumbled on Monday.

Although the sector hasn’t seen huge losses, it has a chart that resembles biotechnology. Like IBB, XLY bounced off its 200-day moving average on Monday. When the weakest sector in the S&P 500 shows bullish signs, which is usually good news for the overall market.


iShares Barclays 20+ Year Treasury (TLT)

Investors will have on eye on Treasuries today with the Federal Reserve announcement at 2 PM. If TLT rallies 2 percent it will make a new high for 2014, and stocks will likely sell-off. If, on the other hand, we get a bullish move in stocks this week, TLT could sink as much as 2 percent before it hits its 50-day moving average, which has served as TLT’s support level.


Also worth watching is the 10-year yield as it has been in a tight range between 2.60 percent and 2.80 percent since February. Odds are that yields will move higher, but this sideways consolidation phase could break either way. A move lower could take yields down to 2.50 percent before rebounding, while a move above 2.80 percent would open up a challenge of the 3 percent high set last year. A move of that magnitude to the upside would likely accompany a strong rally in stocks that might finally put recent volatility into the rear view mirror.


iShares U.S. Real Estate (IYR)

Real estate has been another sector hurt by rising interest rates in 2013. While rates remain elevated in 2014, when compared to last year, they are near the level we saw in July 2013. IYR bottomed in August 2013, just ahead of interest rates peaking in September. Real estate stocks have turned in some of the better performances this year, but this sector should be handled with care when interest rates break out from their current range.


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