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ETF Global Opportunities
Weekly analysis on US stocks, sectors, commodities and global indices.
4 February 2015
     

Market Overview

 

Last week we anticipated some short-term unwinding by the equity ETF market and that occurred. The floor of the two month range on the SPDR S&P 500 (SPY) was found, with a subsequent sharp snap-back. The index is now journeying towards the top end of its range. An upside breakout to record highs could occur through the ceiling as conditions are not overbought.

With the equity market ETFs firming, today we add longs in those areas leading the recovery. We also cover two shorts which are vulnerable to short squeezes should the general market breakout plus we short a major bond ETF as that fails at the top-end of its yearlong range.

 

 


This Week's Trades

  • MidCap Index Trust (MDY) - buying, stoploss at $254
  • Consumer Discretionary (XLY) - buying, stoploss at $67
  • Telecom (IYZ) - buying, stoploss at $27
  • Germany (EWG) - buying, stoploss at $27
  • U.S. Treasury Inflation Protected Securities Fund (TIP) - shorting, stoploss at $117.50
  • Materials (XLB) - close short
  • Industrial (XLI) - close short

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


Other ETF Highlights

 

US Equity Indices

  • see trades

US Sector Indices

  • Global Alternative Energy (GEX) - speculative buy

Other Developed Indices

  • see trades

Currencies

  • British Pound Sterling Trust (FXB) - watch to buy

Commodities

  • Commodity (DBC) - watch to sell

Bonds

  • see trades


Analysis

 

US Equity Indices

 

The MidCap Index Trust (MDY) is nearing record highs and the chart is not overbought. The MACD is turning up from neutral, hinting that there may be an extension higher from here.

Given the outperformance, versus the large caps, since October, we shall enter a long here. The stoploss will be at $254.

 

 

US Sector Indices

 

The Consumer Discretionary (XLY) ETF reversed to the upside yesterday as the fund rallied 2.1%, it is up again today, outperforming. Record highs imminent.

The P&F relative chart holds its long-term uptrend and should soon rise given the outperformance since November last year.

We shall go long the XLY on the close today. The stoploss will be placed at $67, just under the 200-day exponential moving average.

 

 

The Telecom (IYZ) fund had a good session Tuesday, rallying 2.5%. Strength is repeating today, with the stock in the green, also outperforming the general market.

The price is working its way up from the bottom of a six month range and with momentum being favorable, a push to new 52-week highs is likely.

The fund has climbed on a relative basis, since early December last year. That should continue and we shall enter a long today. The stoploss will be at $27.

Current yield for this defensive industry ETF is 2.2%.

 

 

 

The Materials (XLB) fund is attempting to pull away from its 200-day exponential moving average. The 14-day RSI is turning up from neutral, so slack is there to allow a return to the November price high. Since the start of 2015 the fund has now established a small relative uptrend.

We shall cover our short on the close today.

 

 

The Industrial (XLI) fund has also shown improvement the past week, avoiding a breakdown through key moving average support. Given the favorable momentum condition, a record high could be registered over the short-term. Here too, we shall cover our short position.

 

 

The Global Alternative Energy (GEX) ETF has tuned up from a key trendline this month on its P&F price chart, support drawn up from its summer 2012 low. The recovery off that line is the first sign that the two year uptrend is resuming. Follow-through is now needed.

The P&F relative chart reversed up yesterday adding further encouragement. There a four year base is being attempted.

Longs entered here could use last month's low of $50.56 as a stoploss.

 

 

Other Developed Indices

 

Germany (EWG) yesterday saw movement on its P&F price chart for the first time since November. A box was filled to the upside signifying a potential reassertion of the five year uptrend. The P&F relative chart is yet to turn back up but the line ratio shows strength since the start of 2015.

We shall enter a long on the close today. The stoploss will be at $27.

 

 

Currencies

 

The British Pound Sterling Trust (FXB) has been attempting a base over the past few weeks just beneath the key $150 level. Breaking that point and then clearing resistance from the 50-day exponential moving average would imply a retracement of the medium-term downtrend channel was occurring. A bullish momentum divergence has formed since September.

 

 

Commodities

 

The Commodity (DBC) basket ETF is staging an oversold bounce. Momentum has recovered fast and is now pushing through neutral. By the time the 50-day exponential moving average is tested momentum will be close to overbought. Should trading fail at that average then expect the downtrend to resume.

The fund remains a long-term underperformer versus equities.

 

 

Bonds

The U.S. Treasury Inflation Protected Securities Fund (TIP) looks to be failing at the top end of its 52-week range. The 14-day RSI has just rolled over from overbought and plenty of unwinding will be necessary to make the technicals attractive on the long-side again.

The long-term relative downtrend is reasserting; we shall open a short today. The trade aims for a return to the floor of the range around $112. The stoploss will be at $117.50.

 

 

 

MODEL PORTFOLIO

ETF Trading (Long/Short) Longs

Date Stock Code Type Open Price Current Price % P&L Stop
6 Aug 2014 SPDR Consumer Staples XLP Long 43.79 49.02 +11.94% 42
16 Oct 2014 iShares Hong Kong Index EWH Long 20.8 21.84 +5.00% 17.50
19 Nov 2014 DJ US Pharmaceuticals Index Fund IHE Long 147.52 155.7 +5.55% 142.50
3 Dec 2014 SPDR Sector Trst Utilities XLU Long 46.27 48.71 +5.27% 43
17 Dec 2014 SPDR Sector Trst Energy XLE Long 77.08 78.8 +2.23% 70
6 Jan 2015 Gold GLD Long 117.12 121.05 +3.36% 109
21 Jan 2015 iShares DJ Select Dividend Index DVY Long 80.29 80.84 +0.69% 77.75
21 Jan 2015 iShares DJ Transportation Average IYT Long 159.47 159.77 +0.19% 155
ETF Trading (Long/Short) Shorts
Date Stock Code Type Open Price Current Price % P&L Stop
2 Jul 2014 Agriculture DBA Short 27.47 23.24 +15.40% 28.50
1 Oct 2014 WisdomTree Dreyfus Brazilian Real Fund BZF Short 17.67 16.83 +4.75% 19
4 Nov 2014 iShares South Korea Index EWY Short 57.38 57 +0.66% 60.50
11 Nov 2014 CurrencyShares Japanese Yen Trust FXY Short 84.29 82.74 +1.84% 90
19 Nov 2014 Copper JJC Short 36.54 30.84 +15.60% 38
17 Dec 2014 Livestock COW Short 28.881 26.98 +6.58% 31.50
6 Jan 2015 streetTRACKS KBW Bank ETF KBE Short 31.56 31.84 -0.89% 34
6 Jan 2015 Market Vectors Steel Fund SLX Short 33.77 33.79 -0.06% 38
6 Jan 2015 SPDR Sector Trst Materials XLB Short 46.99 49.18 -4.66% 50
21 Jan 2015 iShares Barclays 1-3 yr T-Bond Fund SHY Short 84.84 84.85 -0.01% 85.10
27 Jan 2015 SPDR Sector Trst Industrial XLI Short 55.32 56.28 -1.74% 57
27 Jan 2015 iShares Brazil Index EWZ Short 36.97 35.69 +3.46% 40
27 Jan 2015 Claymore/BNY Mellon BRIC ETF EEB Short 30.12 29.57 +1.83% 31
27 Jan 2015 Emerging Markets Bond EMB Short 111.4 112.09 -0.62% 112.50

 

 

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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