ETF Watchlist for June 10, 2015

iShares iBoxx Investment Grade Corporate Bond (LQD)
iShares iBoxx High Yield Corporate Bond (HYG)
ProShares High Yield Rate Hedged (HYHG)

Interest rates continued their march higher over the past week. The downtrend in the 10- and 30-year treasury yields that started in early 2014 is now broken. Larger downtrends that began years earlier remain in effect and the 5-year treasury note yield is still in a 2-year trading range. The top of that trading range is 1.85 percent, about 0.08 percentage points away on Wednesday. Since mid-April, the 5-year yield has increased by 0.57 percent. A larger breakout is possible over the coming days and weeks.

Rising yields equates to falling bond prices. Investment grade corporate bonds represented by LQD are approaching a support level near $114. Together with the 5-year treasury yield nearing a breakout, there’s clearly some potential for a major move in the bond market.

High yield corporate bonds (HYG) have seen a small bit of selling recently. If there is a larger move in the bond market coming, high yield will hold up better than LQD and treasuries, but they won’t be completely unscathed. The interest rate hedged HYHG will perform better and has been outperforming HYG since February.

PowerShares U.S. Dollar Index Bullish Fund (UUP)
CurrencyShares Euro Trust (FXE)
Global X FTSE Greece 20 (GREK)
CurrencyShares Japanese Yen (FXY)

Greece remains a substantial issue. However, the currency markets remain positive on the situation, with the euro rallying during a period when the prime minister of Greece delivered a fiery speech to parliament blasting the country’s negotiating partners.

The yen, euro and U.S. dollar remain in limbo. The greenback broke out versus the yen last week, but that move is being tested. On Monday, President Obama speaking in Europe said the strong U.S. dollar was a problem. On Wednesday, Japan’s central bank chief said the yen probably will not weaken further. The $24.50 level is important for UUP; above it and the dollar has a short-term bullish outlook. For FXY, $80 is the new resistance line. If it cannot move above it, it signals the recent yen weakness is likely a new trend. The euro needs to set a new high above $112.50, which would likely coincide with a drop below $24.50 for UUP.

SPDR Energy (XLE)
FirstTrust ISE Revere Natural Gas (FCG)
Guggenheim Canadian Energy Income (ENY)
Market Vectors Russia (RSX)

Oil prices remain in a trading range that now stretches to six weeks. On the downside, oil could slide into the low $50 range. To the upside, it could run all the way to the high $70 range before running out of steam. The strong economy is positive for oil and inventories have been falling even as U.S, production ticks higher. The downside risk lies mainly in interest rates and the U.S. dollar. Higher rates and a stronger dollar are bearish for oil.

Guggenheim Solar (TAN)

This solar ETF slipped all the way to $40 a share over the past week. Short-term technical indicators such as relative strength are improving and a rebound in prices appears likely. Shares may continue to slide, but support is at $38, about 7 percent below the current price.

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)

Each S&P 500 sector was down over the past week. Financials were the strongest sector thanks to rising interest rates, while utilities trailed.

Financial sub-sectors are performing much better. Over the same period, SPDR KBW Bank (KBE) rallied 1.91 percent.

Biotechnology broke out to a new high according to the small- and mid-cap dominated SPDR Biotech (XBI), but the large cap biotech stocks in IBB haven’t followed yet. IBB is likely to follow and a move higher will signal a bullish rally is underway in the near-term. For the bears, a move lower might signal a short-term triple top in the fund.

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

A good relative performance from energy and financials over the past week lifted the value sector versus growth. If the price ratio breaks 1.30, it will signal the trend towards value shares has legs.

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

Small-caps have enjoyed a very strong few weeks and shares have moved higher even though the S&P 500 Index fell. This is a bullish sign for the markets because small-caps are more volatile and tend to lead on the way up or the way down. If small-caps enjoy another strong week like we’ve been seeing, the Russell 2000 Index will hit a new all-time high and the ratio of IWM to SPY will set another new high. One factor working in IWM’s favor is the Russell 2000, which has a much larger allocation to the financial sector than the broader market. If financials continue to lead, small-cap highs are coming and the rest of the stock market will quickly follow.

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