ETF Trading Ideas You Need To Know: Will The Market Break?
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The markets seem to be at an inflection point, with many ETFs poised to break below key support levels. Here are the charts, with some long/short ideas.
- QQQ, XLI, XLU, XLY, XLRE, EZU are all testing major support levels. The SPY and XLF look like they are about to do the same
- A sustained break below major support across a number of these ETFs could mark the start of a broader selloff
- There is still a possibility that current price action turns out to be nothing more than the beginning stages of consolidation
- Fixed Income ETFs are already very bearish
- Corporate bonds, LQD and HYG, have moved lower and look primed for larger sell offs
- EM sovereign bonds (EMB) as well
- Consumer Staples (XLP) and Energy (XLE) are rare bright spots for bulls
- XLE continues to rally with oil prices, helped along by the looming possibility of a Russia-Ukraine war
- 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 – Performance
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
- LQD, HYG, EMB, TLT
- LQD and HYG look poised for a large move lower, possibly all the way to COVID 2020’s lows
- EMB also looks set for a large drop
- TLT looks increasingly likely to test its Mar ‘21 lows at $133
- 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
- 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
- EEM is trading in a well established bearish channel
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