ETF Watchlist for May 20, 2015

PIMCO 20+ Year Zero Coupon Treasury (ZROZ)
PowerShares DB German Bund Futures (BUNL)
PowerShares DB 3X Japanese Govt Bond Futures (JGBT)

Interest rates remain in focus following a strong housing report on Monday. Housing has been one of the weak spots in the economy, but housing starts in April jumped 20 percent, the fastest pace since the financial crisis. The data isn’t enough to make investors change their expectations with regards to the Federal Reserve’s timing of a rate hike, but it did send long-term bond yields higher. As can be seen below, both the 30-year and 10-year yield are approaching their highs again. This will be an important short-term test: a move higher could lead to more bond selling, while a move lower would be seen as a double top.

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

Oil prices appear to have peaked in the short-term, with momentum fizzling. Equity traders anticipated the move and energy shares have been among the worst performing in the market over the past few weeks. In the case of Russia, the rebound is also losing steam. Look at the volume at the bottom of the chart: volume was strong into March, but since then has been falling off as RSX rises. The ETF also retreated before crossing $21, which would have signaled a bullish outbreak. Overall, bearishness is set to continue for the energy sector, with a reversal likely hitting equity related funds first.

Guggenheim Solar (TAN)

We have been looking for a correction in TAN down to the low $40s, but we didn’t expect to get it in one day: TAN is down 9 percent in early Wednesday trading.  One issue the industry is facing are concerns about debt levels at Chinese solar companies. One firm that came into focus this past week was Yingli (YGE), which is down about 50 percent over the past month. Shares saw most of their losses after the firm said there was “substantial doubt about our ability to continue as a going concern” if it cannot meet debt payments. YGE is only 0.89 percent of TAN’s assets as of Tuesday’s close and it’s up 22 percent in early Wednesday trading, so it can’t be blamed for today’s drop.

Instead, that title goes to Hanergy, whose stock plunged 47 percent in less than a half an hour before being halted. The firm’s stock gained more than 400 percent since August as Chinese investors poured into it. Hanergy’s earnings came from selling off factories and many analysts questioned why the stock price had surged over the past nine months. The trigger for the latest plunge, if current reports are accurate, was selling by creditors. Hanergy used stock as collateral for loans and when the loans weren’t paid on time, a creditor sold the shares. Once news of that broke out, the lenders all started dumping shares.

Coming into today’s open, Hanergy represented 12 percent of TAN’s assets. The drop in price from Hanergy alone is equivalent to 5.6 percent of TAN’s assets. Long term, if solar firms in China start going bust at a faster pace it will be deflationary for the industry, pulling prices lower as debt free companies emerge from bankruptcy.

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)

Utility firms were the best performing sector over the past week, thanks to a retreat in interest rates. Those rates have spiked higher today though, and if they keep moving higher, utilities will be under pressure again. The $45 level for XLU is an important resistance level.

Biotechnology is trying to challenge its old highs. IBB is less than 3 percent below its all-time high and a 3 percent move in one day isn’t such a rare thing for the volatile sector. Failure to break to old high would be short-term bearish, and if IBB pushed back near the high and failed, it could set up a head-and-shoulders pattern with a target down nearing $310, about 13 percent below current prices. On the flip side, a move higher would signal a new rally is underway.

Retail stocks are in the middle of their earnings season. Wal-Mart (WMT) missed yesterday, but the retail and consumer discretionary ETFs were barely dented.

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 concern for currency markets. Both the euro and U.S. Dollar Index are approaching important short-term levels this week. There is support for the euro around $1.10, or $107.50 for FXE. Similarly, the UUP faces resistance below the $25.50 level. If the intermediate-term trend has shifted to bullish for the euro and bearish for the dollar, both of these should reverse after hitting support/resistance.

The more interesting chart is the Japanese yen. The yen has flatlined since December, but the USDJPY exchange rate is approaching its low point. A break lower could unleash another big leg down for the yen, with the next targets at 125 and then 135.

iShares MSCI Hong Kong (EWH)
Guggenheim Small Cap China (HAO)
iShares China Large Cap (FXI)
db X-Trackers China A Shares (ASHR)

China’s mainland share index remains below the high set in late April, but a government order for banks to lend to local governments, a huge investment in rail and plans for tax cuts and more reforms sparked bullish sentiment. With the government having unleashed the latest plan, in addition to rate cuts a week earlier, failure to set a new high in the coming days and weeks could be a sign the current rally is over and a correction is coming.

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

Mid- and small-cap shares outperformed the S&P 500 Index over the past week and short-term momentum indicators show this move should continue. The Dow and Nasdaq matched the S&P 500 Index.

iShares DJ Transportation (IYT)

IYT is still hovering near its lows from April. A break of $152, opening up a potential drop into the low $140s, remains a possibility.

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