ETF Edge – Trading Opportunities In ETF Markets
What good trading opportunities exist in the ETF space right now?
ETF Edge keeps you up to date with our views and trading ideas.
Summarized and presented to you in charts!
Staging A Comeback? ETF Trades You Must Know #5
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US equities are looking to start February on a more positive note, with many ETFs rallying after last week’s blood bath and bounce.
Will Feb mark a comeback?
- US stocks are looking to stage a comeback as February begins, with many ETFs continuing to rally after last week’s sell off and bounce
- US high beta stocks differ in their bullishness, with Tech looking more enthusiastic in its rally than US small caps
- Sector ETFs are also mostly rallying together, although to different degrees
- Financials (XLF), Energy (XLE), and Consumer Staples (XLP) remain very bullish
- Consumer Discretionary (XLY) and Real Estate (XLRE) not so much, although they remain in broader uptrends
- Consumer Discretionary (XLY) and Real Estate (XLRE) not so much, although they remain in broader uptrends
- Emerging Markets equities (EEM) and sovereign bonds (EMB) are looking very bearish
- Wildcards:
- Consumer staples stocks (XLP) continue to outperform consumer discretionary ones (XLY) even as the Fed grows increasingly hawkish
- The USD remains strong, and the US yield curve has gotten even flatter!
Trading Ideas – Long
- XLE to take advantage of how bullish oil prices are
- XLF if you buy into the narrative that rate hikes are good for bank stocks
- If you don’t, most traders do, and would be looking to position themselves accordingly
- Regardless, XLF is trading in a very bullish manner
- XLI is starting to look like a decent bet
- Is currently more defensive than XLU, especially with traders following the “higher rates = utilities less attractive” narrative
- Retains upside potential from stronger economic growth
- XLP is an interesting bet which could offer the best of both worlds
- Defensiveness against current sell off and market volatility
- Upside potential from very bullish trend
Trading Ideas – Short
- EEM is trading in a well established bearish channel
- Rallied in early January, but has now given back all its gains
- IWM has broken below its range, and is now in a clear downtrend
- This could be a good short if you do not think a bottom is in for equities, or if you simply want to follow the trend
- Buying IWM puts is another way to express this view which would also allow you to take advantage of a possible spike in volatility
- LQD, HYG, EMB, TLT
- The entire fixed income ETF space looks like it’s headed lower as rates (and their expectations) keep rising
- EMB looks the weakest technically
- XLY is struggling, and now that IWM has broken out to the downside, it’s hard to imagine XLY doing well
- Could hedge a XLY short with a XLP long to create a pair trade that still makes money if XLY falls, and loses less if XLY changes direction
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Blood Bath And A Big Bounce: ETF Trades You Must Know #4
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Monday saw a blood bath in markets which was followed by an even larger bounce. Could this mean that the bottom is in for equities?
Blood Bath & Bounce… On The Same Day!
- Monday saw sharp sell offs across a broad swath of markets, followed by an even bigger bounce
- US small caps have finally broken out of their range (to the downside), and are now in a clear downtrend
- Sector performance continues to diverge
- Financials (XLF), Energy (XLE), and Consumer Staples (XLP) remain bullish
- Tech (QQQ), Consumer Discretionary (XLY), Real Estate (XLRE), and Utilities (XLU) are looking increasingly weak, although they remain in broader uptrends
- Corporate bonds, LQD and HYG, still look like they are heading lower
- Emerging Markets equities (EEM) and sovereign bonds (EMB) are looking very bearish
- Yesterday’s sell off and bounce will have many asking if the bottom is in for equities. Here are some points to consider:
- A simple technical rule of thumb – a market closing higher the day after putting in a possible low is considered to be a confirmation signal. That is, Tuesday’s close > Monday’s close
- If you want a stronger signal, look to see if Wednesday’s close > Tuesday’s close > Monday’s close
- Consumer staples stocks (XLP) continue to outperform consumer discretionary ones (XLY) even as the Fed grows increasingly hawkish
- The USD remains strong, and the US yield curve is flattening!
Trading Ideas – Long
- XLE to take advantage of how bullish oil prices are
- XLF if you buy into the narrative that rate hikes are good for bank stocks
- If you don’t, most traders do, and would be looking to position themselves accordingly
- Regardless, XLF is trading in a very bullish manner
- XLI is starting to look like a decent bet
- Is currently more defensive than XLU, especially with traders following the “higher rates = utilities less attractive” narrative
- Retains upside potential from stronger economic growth
- XLP is an interesting bet which could offer the best of both worlds
- Defensiveness against current sell off and market volatility
- Upside potential from very bullish trend
Trading Ideas – Short
- EEM is trading in a well established bearish channel
- Rallied in early January, but has now given back all its gains
- IWM has broken below its range, and is now in a clear downtrend
- This could be a good short if you do not think a bottom is in for equities, or if you simply want to follow the trend
- Buying IWM puts is another way to express this view which would also allow you to take advantage of a possible spike in volatility
- LQD, HYG, EMB, TLT
- The entire fixed income ETF space looks like it’s headed lower as rates (and their expectations) keep rising
- EMB looks the weakest technically
- XLY is struggling, and now that IWM has broken out to the downside, it’s hard to imagine XLY doing well
- Could hedge a XLY short with a XLP long to create a pair trade that still makes money if XLY falls, and loses less if XLY changes direction
Do You Want To Make Money Trading?
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A Sea Of Red: ETF Trades You Must Know #3
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The effects of higher rates continue to sweep through the markets, shaking up existing trends and relationships. Which ETFs are doing well, and which aren’t?
A Sea Of Red
- US small caps look poised to break out to the down side, which would herald more selling
- If this happens and the IWM keeps falling, it would be a very bearish signal for the rest of the markets
- Look to other markets for confirmation: stronger USD and flattening US Yield Curve
- Sector performance continues to diverge
- Financials (XLF), Energy (XLE), and Consumer Staples (XLP) remain very bullish
- Consumer Discretionary (XLY), Real Estate (XLRE), and Utilities (XLU) are starting to look weak, although still trading in broader up trends
- XLY’s weakness is the wildcard here, especially in relation to XLP’s strength – we are heading into a rate hiking cycle with consumer staples stocks outperforming consumer discretionary stocks; how strong can the economy really be?
- Fixed income ETFs are poised for more carnage
- Corporate bond ETFs LQD and HYG are testing key support levels
- Emerging Markets sovereign bonds (EMB), already in a bearish channel, have broken out to the down side
Trading Ideas
- Long:
- XLE to take advantage of how bullish oil prices are
- XLF if you buy into the narrative that rate hikes are good for bank stocks
- If you don’t, most traders do, and would be looking to position themselves accordingly
- Regardless, XLF is trading in a very bullish manner
- XLI is starting to look like a decent bet
- Is currently more defensive than XLU, especially with traders following the “higher rates = utilities less attractive” narrative
- Retains upside potential from stronger economic growth
- XLP is an interesting bet which could offer the best of both worlds
- Defensiveness against current sell off and market volatility
- Upside potential from very bullish trend
- Short:
- IWM on a break below its range
- Or buy IWM puts if you want to take advantage of a possible spike in volatility
- LQD, HYG, EMB, TLT
- The entire fixed income ETF space looks like it’s headed lower as rates (and their expectations) keep rising
- EMB looks the weakest technically
- XLY is struggling, and if IWM does break to the downside, it’s hard to imagine XLY doing well
- Could hedge a XLY short with a XLP long to create a pair trade that still makes money if XLY falls, and loses less if XLY changes direction
- IWM on a break below its range
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What A Difference A Week Makes: ETF Charts You Must Know #2
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What a difference a week makes, as expectations for higher interest rates reverberate through the US equity markets. Which ETFs are doing well, and which aren’t?
- US equities come off their highs, with high beta bearing the worst of it
- High beta equity ETFs continue to under perform the S&P 500, with QQQ and IWM some way off their previous highs
- US sector ETF performance is beginning to diverge as the interest rate environment changes
- Financials (XLF), Energy (XLE), and Consumer Staples (XLP) remain very bullish
- Real Estate (XLRE) and Utilities (XLU) are exposed to continued sell offs should interest rates continue to rise
- Can we say that risk sentiment is strong if “boring” large cap, low beta consumer staples stocks are doing so well?
- European and EM equities are still lackluster relative to US equities, although Chinese large caps have been attempting to rally (how far can this go with the Evergrande contagion still raging?)
- Fixed income ETFs are still reflecting expectations for higher interest rates
- Corporate bond ETFs LQD and HYG are moving lower (yields moving higher)
- Emerging Markets sovereign bonds (EMB) too, although this is more a reflection of global USD liquidity conditions
- Even TLT has broken out of its up trend as long dated US Treasury yields rally to test last year’s highs
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Not So Bullish Globally: ETF Charts You Must Know #1
If the slides above aren’t loading, you can read ETF Edge over here.
As 2022 begins with the now quite normal headlines of US equities making new highs, here’s a look at what other ETFs are doing. Do they share the same degree of bullishness? (Spoiler alert: nope)
- US Equities start 2022 with the same bullishness they held through 2021
- Even with all the talk of the Fed taking equities into a bear market with its hawkishness, the SPY and QQQ are either close to, or making new highs
- Bear in mind that, historically, higher rates do not actually equate to bear markets in equities
- The IWM (US small caps) remains circumspect however, which hints at the rally in US stocks not being as broad based as headlines suggest
- European and EM equities also lack the overt bullishness of the SPY and QQQ, with Chinese stocks in particular under performing
- Fixed income ETFs are also broadly reacting to increased Fed hawkishness
- Corporate bond ETFs LQD and HYG are moving lower (yields moving higher)
- EMB (Emerging Markets sovereign bonds) as well
- TLT remains the exception and remains in an uptrend (lower yields)
- Although this might change soon if long dated US Treasuries continue their new year sell off
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