ETF Watchlist for January 27, 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)
PowerShares DB U.S. Dollar Bullish Index (UUP)

The bounce in oil prices over the past week has lifted the commodity-dependent Australian and Canadian dollars. Most major currencies, however, remain in a holding pattern. The U.S. Dollar Index is struggling to break clear of 100 and currencies such as the euro, krona and Australian dollar are holding near their lows. The yen has also paused following a small rally. Guggenheim CurrencyShares Japanese (FXY) is trading between $78 and $84, a range of about 8 percent. Traders have warmed to the yen since the rally, perhaps, in part, to hedge against market weakness. The Bank of Japan will meet on Friday. Recent comments by BOJ officials suggest the bank will not increase its quantitative easing policies.

The Chinese yuan has been stable following central bank intervention and could remain even through the Chinese New Year holiday, which begins in 10 days.

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)
A week ago today, the price of oil sank below $27 a barrel. At one point in the past week, it climbed above $32 a barrel, for a low-to-high swing of about 20 percent. The rally was driven mainly by a reversal in sentiment, which reached extremely negative levels last week. Prices did receive a boost when an Iraqi oil minister claimed Saudi Arabia and Russia will cut production soon, but thus far it is only rumor.

Energy stocks have moved almost in lockstep with oil as investors expand the list of companies expected to cut their dividends. ConocoPhillips (COP) and the state-owned Chinese energy giants are the latest firms attracting analyst attention. Since higher yielding energy stocks are widely held by dividend-paying funds and income investors, a cut in the dividend can lead to further selling in energy stocks even if oil prices don’t continue to fall.

iShares Biotechnology (IBB)

IBB fell as low as $270 last week before bouncing back above $280. The Massachusetts Attorney General is threatening to sue Gilead (GILD) if it doesn’t lower the cost of its hepatitis C drug. Gilead is a top holding in biotechnology funds and this news sent shares to a 52-week low. A break of that low could invite further selling. This political risk tends to be short-lived, but since a lawsuit by the state could follow, this cloud could hang over the stock a bit longer.

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)

This week let’s look at the long-term relative performance of various sectors versus the S&P 500 Index. Healthcare and consumer discretionary have been clear leaders in the past, while energy and materials have lagged. Utilities and industrials have been in overall downtrends as well, while technology and consumer staples have been generally moving higher. Eventually, the underperforming sectors become relative bargains and reverse, but as we’re seeing in energy, the losses can still be substantial even after a very long period of underperformance.

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

High-yield bonds bounced sharply off their lows, rallying along with oil prices. Investment-grade bonds have struggled recently as investors demand better returns for taking on higher risk. The chart below reflects the 10-year treasury yield, including LQD (excluding dividends). Most of the time, LQD rises when the 10-year yield falls, but a wave of safe-haven treasury purchases began in December. Yields fell for treasuries, but not for investment-grade bonds, which may reinvigorate higher- yielding investment-grade bonds in the week ahead.

Market Vectors Gold Miners (GDX)

Gold prices have rallied in the past week, aided by comments from European Central Bank President Mario Draghi, who said the ECB may do more to help the markets when officials meet in March. The Bank of Japan will meet on Friday. Today’s Federal Reserve statements confirmed analysts’ prediction that no rate hikes are immediately imminent. Fed Chair Yellen cautiously referred to slowed December growth and lower inflation, despite strong December housing and jobs data.

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

Stocks have rebounded over the past week, but sentiment has yet to turn bullish. The small-cap Russell 2000 should lead a rally in stocks, but recently it bounced as much as the S&P 500. The mid-cap S&P 400 has bounced sharply over the past few days, which could hint at more bullishness in the week ahead.

The Dow has lagged due to earnings related slides in Boeing (BA), General Electric (GE) and Apple (AAPL). The dip in Apple today is also pulling the Nasdaq lower. Apple made a new closing low for the year, which is bearish for the stock in the near-term. Due to the weight of Apple in the Nasdaq, it will struggle versus the S&P 500 if the stock continues to slide.

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