ETF Watchlist for June 1, 2016

First Trust Dow Jones Internet (FDN)
Global X Social Media (SOCL)
First Trust ISE Cloud Computing (SKYY)

Cloud and social media stocks climbed to new 2016 highs over the last week to rally the broader Internet sector. Demandware (DWRE), which comprises about 1 percent of FDN, is being purchased by (CRM) for cash. Shares of DWRE climbed more than 50 percent on the day, which translates into a 0.5 percent increase in shares of FDN. That gain is keeping FDN in the black as much of the sector trades lower today.

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

The energy sector has consolidated even as oil prices nudge towards $50 a barrel. XLE has support near $64 a share. That could be tested in the coming weeks if the U.S. dollar continues to strengthen.

A chart below compares the price of West Texas Intermediate Crude (WTIC) to the inverted U.S. Dollar Index. Aside from some short-term aberrations, the price of crude tends to move inverse to the U.S. dollar. If the dollar rally extends into June, crude oil is likely to stall or correct.

China’s manufacturing weakness in May will likely continue into June if the U.S. dollar strengthens. Industrial metals have already corrected, in part because due to China’s futures trading restrictions. Regulators successfully burst the bubble in iron ore, steel rebar and other hotly traded commodities.

iShares MSCI Emerging Markets (EEM)

Many emerging markets rely on commodities exports to fuel their growth. When exports dry up or prices fall, these countries often face slow growth and overwhelming debt. EEM’s 2016 chart illustrates its similarity to the above commodity funds.

Looking farther back, the 1-year chart of EEM is forming an inverse head-and-shoulders pattern. With a low near $28 and neckline above $35, an upward break could send EEM into the low $40s.This pattern has yet to complete, but it shows the potential for a bullish move if markets head north. On the downside, the nearest support is at $31 per share.

iShares US Medical Devices (IHI)
iShares US Health Providers (IHF)
iShares Nasdaq Biotechnology (IBB)
SPDR Pharmaceuticals (XPH)

Biotech and pharma are still leading the healthcare sector higher. Over the past two weeks, these sectors are up 9 percent, triple the overall healthcare sector’s 3 percent gain. Both IBB and XPH have similar charts. IBB is approaching resistance at $290 and XPH at a tad below $46 per share. Both funds could add another 10 percent if they clear those levels.

Medical devices remains the strongest sub-sector; it hit a new all-time high in the past week.

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

The Nasdaq beat the Dow and S&P 500 by a wide margin in May, though it has yet to break into the black for the year. Technology companies such as Apple (AAPL) and Microsoft (MSFT) recovered some of their April losses, lifting the tech-heavy index.

The Dow had been the best performer in 2016 as investors stuck with blue chips for most of the year, but it lost its lead to the S&P 500 Index in May. Mid- and small-caps outperformed in May as investor confidence grew. For that reason, SDY was also an underperformer.

The S&P 500 Index remains near its all-time highs and the 2100 level will be the battle line between bulls and bears in the week ahead.

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)
SPDR Retail (XRT)

With the odds of a Fed rate hike climbing, utilities surprisingly outperformed over the past week, with XLU up nearly 2 percent. Technology, healthcare and consumer discretionary were more typical outperformers thanks to strong economic data and relative immunity to interest rates.

Semiconductors remain in a strong uptrend and earnings from Broadcom (AVGO) tomorrow could keep the hot streak alive. Analysts expect $2.38 per share in earnings, and those estimates have increased from $2.20 at the start of the quarter. AVGO is 11 percent of SOXX.

Technology is nearing its all-time high. Thus far in 2016, the defensive sectors and industrials have broken out to new all-time highs, but a new high in this growth sector would be a significantly bullish event for the overall market.

Financials continue to climb higher amid rising rate hike expectations. A 1.5-percent gain would push IAK to a new all-time high. Insurance companies benefit from higher interest rates because it both raises the return on their assets and allows them to shift capital away from riskier investments.

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

High-yield bonds have stalled along with oil prices, while investment-grade bonds held firm with the 10-year treasury yield. A larger pullback in LQD is likely if interest rates increase.

SPDR S&P 500 Large Cap Growth (SPYG)
SPDR S&P 500 Large Cap Value (SPYV)

Value and growth are in a stalemate as June kicks off. Commodities have weakened, despite growth in financials. Technology’s rebound has been a boon for growth, but consumer discretionary has been hurt by losses in areas such as department store retail.

Market Vectors Gold Miners (GDX)
Global X Silver Miners (SIL)
SPDR Gold Shares (GLD)

Gold and precious metals took a hit on the Fed’s hawkish tone of late, but they remain in a correction similar to the rest of the commodity sector.

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