ETF Watchlist for January 6, 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)

2015’s currency market trends have spilled over into the new year as emerging markets and commodity exporters struggle to get a foothold. Over the past week, the Canadian dollar fell to a new 52-week low versus the U.S. dollar and the Australian dollar reversed sharply, though the uptrend it has experienced since September should remain intact. Commodity-related emerging market currencies slumped as oil prices approached 2015 lows. The freely-traded offshore Chinese yuan has already depreciated 2 percent in 2016 in anticipation of expiring stock-selling bans that were initiated to remedy August’s 4 percent depreciation.

Despite the stock market’s shaky 2016 start, 18-month correlations between the U.S. dollar and U.S. equities have been positive.

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)

Rising tensions between Iran and Saudi Arabia lifted oil prices over the weekend, but a large increase in U.S. inventory sent West Texas Intermediate Crude sharply lower on Wednesday. Gasoline price tumbled more than 6 percent.

Natural gas prices spiked in December in anticipation of Arctic air blowing into the lower 48. Cold temperatures have finally arrived and could fall lower in January, but natural gas producers haven’t responded to the jump in prices yet. Meanwhile, energy equities have caught up with oil and are sitting near their 2015 lows and could initiate a new selling wave.

iShares Biotechnology (IBB)

Two weeks ago a break above a short-term resistance level of $340 would have been bullish. A decline in prices, however, has lowered the level to $320. A mini head-and-shoulders pattern has formed and a break lower could carry the fund to around $300 per share, a drop of about 7 percent.

iShares MSCI Emerging Markets (EEM)

We are looking at a possible breakdown in emerging markets and a new closing low could be reached today. Unlike the small downside risk in IBB, the potential decline for EEM is nearly 20 percent, dropping to $25 per share.

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)

Energy led through last week’s lower market, but due to today’s losses, that short-term lead dissipated. Utilities will maintain short-term leadership, with shares only slightly down on Wednesday. Defensive issues are minimizing losses, as consumer staples and healthcare outperformed the broader market.

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

The short-term panic in the high-yield market has abated as prices recover. Attractive yields are bringing in bargain hunters and buyers were tolerant of today’s dip in oil. Exposure to shale oil producers weighed on high-yield funds in 2015.

Treasury yields are contributing to strength in bonds. The 5-year treasury yield summited its trading range at the end of 2015 before promptly pulling back. The 2-year treasury reached a new high following the Fed’s rate hike, but bonds with longer maturities are holding firm.

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

SPY remains in a $195 to $210 per share trading range, excluding the August drop.

Mid-caps have firmed versus the S&P 500 in the past couple of weeks, but small-caps continue to underperform. Strength in consumer staples and dividend-paying shares are evident in the relative strength of SDY. Internet stocks weakened last week as companies such as Amazon (AMZN) and Facebook (FB) pulled back from the gains that brought the market into positive territory last year. This retreat makes room for indexes with more consumer staples and healthcare exposure, such as the S&P 500, to pull ahead in terms of relative performance.


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