ETF Watchlist for January 20, 2016

WisdomTree Chinese Yuan (CYB)
WisdomTree Bloomberg USD Bullish (USDU)
CurrencyShares Euro Trust (FXE)
CurrencyShares Swedish Krona (FXS)
CurrencyShares Canadian Dollar (FXC)
WisdomTree Emerging Market Currency (CEW)
WisdomTree Commodity Currency (CCX)
PowerShares DB U.S. Dollar Bullish Index (UUP)

Commodity-related currencies slid again this week as oil prices fell below $27 a barrel. The euro and other European currencies excluding the British pound are stable. The USDU chart points to signs of a U.S. dollar bull rally, though the euro continues to prevent a currency market rout for the greenback.

The yen is also gaining strength. FXY is approaching a key resistance level to the upside, or if you are looking at the widely-quoted exchange rate, the USDJPY is approaching the key support level around 116. A break below this level could spark a slide to the 110-yen level. The chart below compares the yen to the S&P 500 Index and illustrates how a further drop in the equity markets would impact the yen. The yen was a cheap funding currency in recent years, not only because of low interest rates, but also due to a rapid drop in the currency’s value. Traders borrow in yen and buy all manner of higher-yielding, higher-return assets. As these assets drop in price, traders reverse their trades and repay yen loans.

United States Oil (USO)
SPDR Energy (XLE)
FirstTrust ISE Revere Natural Gas (FCG)
Global X Copper Miners (COPX)
Market Vectors Coal (KOL)
Market Vectors Steel (SLX)

The slide in oil prices, to below $27 today, is pulling the entire resource and commodity sector lower. A long-term chart of XLE shows there could be support at the $50 level, where shares traded about 10 years ago and where they bottomed in 2010 before moving higher.

iShares Biotechnology (IBB)

Last week we were looking for $275 for support, but that was broken today. Next support comes at $260. Pharma is testing its 52-week low. A break to a new low would be bearish, but shares performed incredibly well versus the broader market today.

iShares MSCI Emerging Markets (EEM)

The target on EEM is still $25, but we could see a bounce at $27.50.

SPDR Utilities (XLU)
SPDR Pharmaceuticals (XPH)
SPDR Materials (XLB)
SPDR Consumer Staples (XLP)
SPDR Consumer Discretionary (XLY)
SPDR Healthcare (XLV)
SPDR Technology (XLK)
SPDR Financials (XLF)

Utilities, consumer staples and healthcare remain the outperformers, with the rest of the market falling largely in unison.

iShares iBoxx High Yield Corporate Bond (HYG)
iShares iBoxx Investment Grade Corporate Bond (LQD)

Credit markets are starting to worry about credit risk. Not only did high-yield bonds break to a new 52-week low, but investment grade bonds also saw selling pressure in the past week. The price ratio charts below tell the story. The drop in high yield bonds relative to investment grade bonds (HYG vs LQD), looks very similar to the drop in investment grade bonds versus treasuries. The dip in LQD is much smaller, but it shows how investors are rushing out of quality corporate bonds and into safe haven assets such as treasuries. It is difficult to pinpoint an end to the selling since markets can be highly volatile in these situations, but this behavior suggests the selling is at least reaching a short-term conclusion.

Market Vectors Gold Miners (GDX)

Gold prices rose as investors anticipate central bankers will step in to stop the slide in global financial markets. Gold miner shares are falling with the rest of the market though, and broke key short-term support today.

SPDR S&P 500 (SPY)
iShares Russell 2000 (IWM)
S&P Midcap 400 (MDY)
PowerShares QQQ (QQQ)
SPDR S&P Dividend (SDY)

Relative to large-caps, small-caps stocks are at their cheapest since 2008. Mid-caps are also relatively low priced in the current climate. The Dow continues to hold up relatively well, while the drop so far in the technology-laden Nasdaq is quite small in the long-term scheme of things. Dividend payers are not being sold as quickly as other stocks during this sell-off, which is benefiting dividend funds such as SDY.

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