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ETF Global Opportunities
Weekly analysis on US stocks, sectors, commodities and global indices.
1 October 2014
     

Market Overview

Our short-term-composite is now deeply oversold. It may weaken slightly more, down to the August low at 4%, but it is unlikely to remain at these levels for much longer. Therefore a snap-back by the equity ETFs is anticipated soon. Once this indicator reverses back up it would be the signal to reduce shorts and add longs in reassertion candidates. Limited action this week as we watch developments. One new defensive buy and one new short in a weak emerging market currency.

 

 


This Week's Trades

  • DJ Select Dividend Index (DVY) - buying, stoploss at $71.90
  • Brazilian Real (BZF) - shorting, stoploss at $16.33

Note - Trades will be executed on today's close.


Other ETF Highlights

 

US Equity Indices

  • see trades

US Sector Indices

  • Consumer Staples (XLP) - buy reiterated
  • Health Care (XLV) - buy reiterated
  • Pharmaceuticals Index (IHE) - buy reiterated
  • Materials (XLB) - watch to buy above $50

Other Developed Indices

  • Hong Kong (EWH) - watch to cover shorts

Emerging Indices

  • Brazil Index (EWZ) - sell
  • China 25 Index (FXI) - sell
  • Emerging Market (EEM) - sell

Currencies

  • see trades

Bonds

  • US 20+ years (TLT) - buy


Analysis

 

US Equity Indices

The DJ Select Dividend Index (DVY) has corrected down to likely support from the 200-day exponential moving average. Momentum, the 14-day RSI, is just above oversold. The uptrend is well positioned to reassert from here.

We shall buy the DVY today. The stoploss will be at $71.90.

 

 

 

US Sector Indices

 

We reiterate our buy advice in the Consumer Staples (XLP) ETF. The chart shows support from the 50-day exponential moving average being found and momentum is down to neutral. An upside reassertion looks imminent.

 

 

The Health Care (XLV) fund is an area we have bought and sold quite a few times given its reliable outperformance. We are currently long. The price has consolidated for the past two weeks, allowing the 14-day RSI to unwind to neutral. A reassertion looks at hand.

 

 

We also reiterate our buy advice for the Pharmaceuticals Index (IHE). The P&F price and relative charts both hold their uptrends with upside movement last month. New highs expected during October.

 

 

The Materials (XLB) fund is putting pressure on its 50-day exponential moving average. The price needs to recover soon if the uptrend is to reassert, as it did in April and then early August. A return above $50 would be a good level from where to enter longs as it would imply an attempt to reassert was underway.

 

 

Other Developed Indices

 

Protests in Hong Kong (EWH) have dragged its ETF down sharply the past few weeks. Uptrend support off the 2011 low is being tested and conditions are entering oversold. A bounce back could occur soon, therefore fresh shorts are not recommended.

 

 

Emerging Indices

 

The Brazil Index (EWZ) is reasserting its long-term price and relative downtrends. Weakness over the past two sessions has caused the price to breakdown through a rising trendline off the February low. A test of that low at $38 is possible over the medium-term.

 

 

The China 25 Index (FXI) has failed at the top of a three year range. Potential for a retreat back down towards the floor around $32.50. The relative downtrend against the S&P 500 is strongly down and we would avoid longs.

 

 

The Emerging Market (EEM) fund shows a similar picture to the FXI as China is a large constituent of the ETF. The price could deteriorate down towards $35, the bottom of a two year range. The relative chart has been falling for the past three years.

 

 

Currencies

 

The Brazilian Real (BZF) is likely reasserting its long-term downtrend following the bounce over the first six months of the year. The relative trend, versus the U.S. equity market, is also resuming south.

With the price set to return towards the low from 2013 at $16.33, we shall enter a short here. The stoploss will be at $19.

 

 

Bonds

 

The US 20+ years (TLT) fund maintains its 2014 price uptrend. Support is being provided by the 100-day exponential moving average and conditions are not overbought. The MACD is only just rising through neutral.

 

MODEL PORTFOLIO

ETF Trading (Long/Short) Longs

Date Stock Code Type Open Price Current Price % P&L Stop
29 Jan 2014 iShares S&P National Municipal Bond Fund MUB Long 106.11 109.67 +3.36% 107.25
6 Aug 2014 SPDR Consumer Staples XLP Long 43.79 45.11 +3.01% 42
6 Aug 2014 iShares Germany Index EWG Long 28.35 27.7 -2.29% 25
6 Aug 2014 iShares United Kingdom Index EWU Long 20.165 19.38 -3.89% 18.50
19 Aug 2014 SPDR Sector Trst Health Care XLV Long 62.85 63.91 +1.69% 60
16 Sep 2014 DJ US Pharmaceuticals Index Fund IHE Long 140.31 140.35 +0.03% 135
ETF Trading (Long/Short) Shorts
Date Stock Code Type Open Price Current Price % P&L Stop
2 Jul 2014 Agriculture DBA Short 27.47 25.55 +6.99% 28.50
9 Jul 2014 streetTRACKS KBW Bank ETF KBE Short 33.2 31.91 +3.89% 34.25
16 Sep 2014 Emerging Markets Bond EMB Short 113.58 112.85 +0.64% 115.50
23 Sep 2014 ISHR S&P Small Cap 600 Index IJR Short 105.99 104.3 +1.59% 111
23 Sep 2014 iShares Dow Jones US Aerospace & Defense Index Fund ITA Short 107.96 107.58 +0.35% 112
23 Sep 2014 SPDR Oil & Gas Exp & Prod ETF XOP Short 70.1 68.83 +1.81% 74.50
23 Sep 2014 iShares GS Semiconductor Index SOXX Short 87.2 86.85 +0.40% 90.50
23 Sep 2014 iShares Italy Index EWI Short 15.61 15.69 -0.51% 16.75
23 Sep 2014 iShares Canada Index EWC Short 31.46 30.69 +2.45% 33

Model Portfolio Rules
Allocation – The maximum number of trades is limited to 20 (including longs and shorts).
 
Opening of positions – Positions are opened at the immediate close following the report, using the closing price.  
 

Closure of positions – The Analyst may close a position to take profits or exit early to prevent a loss if the outlook has changed. Positions will only be closed if there has been prior mention in the newsletter. The closing price will be at the next close following the report.

Stops – Stop levels are given for each model portfolio position.

 
Note - When positions are stopped/closed out they will not appear as closures immediately but we plan to update the portfolio table with in 24 hours.
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