ETF Trading Opportunities: More Pain Incoming
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The recent market bounce is clearly over, and the bloodbath across all markets continues.
Naturally, this means that most trading opportunities are biased to the short side.
- The markets are done bouncing and have moved into the second leg of their selloff, which has been brutal, with everything falling together
- High beta, low beta, and the SPY itself have all seen dramatic falls
- XLF is telling us something interesting – financials are “supposed” to do well in rising rate environments, like now, but they aren’t. The economy clearly isn’t doing well, at least from the market’s perspective
- Even Energy stocks (XLE) took a tumble, and are off their highs. Oil prices remain elevated ~$120, but with macro conditions deteriorating all over the world, how long can demand for oil stay as it is?
- XLU has made an aggressive reversal to the downside, and now looks more intent on testing support than making new all time highs
- Fixed Income ETFs continue to sell off strongly together, with a test of COVID lows looming
- LQD and HYG move closer to testing their COVID lows, while EMB has already broken briefly below its own
- TLT has fallen below critical support as US 10y yields move above 3.3%
Trading Ideas – Performance


Trading Ideas – Commentary
- Went short IWM again as it broke below support at 181.5, but order was filled at 180.5 due to a gap open
- Re-entered short position in EMB as it broke below short term support at 90
- Trade aims to capitalize on EMB’s bearish trend, as well as deteriorating global macro conditions
- Entered a straddle on XLU at a strike of 72, expiry Sep ‘22
- Position will be profitable if XLU makes a decisive move in either direction
- Straddle is paying off as XLU has very aggressively reversed its direction
- Shorts in LQD and HYG stopped out as both spiked higher over the end of May, for respective returns of 4.93% and 3.33%
Trading Ideas – Long
- A straddle on XLU is an increasingly interesting prospect
- Consolidating between critical support and all time highs, which way will it break?
- Straddles are expensive, but will allow us to profit as long as the market makes a decisive break
- With global macro conditions deteriorating, and energy prices remaining sky high, XLU will have to move in one direction or the other
- Consolidating between critical support and all time highs, which way will it break?
Trading Ideas – Short
- IWM has broken out to the downside and remains vulnerable to further sell offs given how harsh deteriorating macro conditions are on small cap equities
- It is trading a fair distance away from the next major support level at 151.5. Its short and medium term trends have now realigned
- LQD, HYG, EMB
- LQD, HYG, and EMB can still make a large move lower, with a test of COVID 2020’s lows now a real possibility
- EEM recently broke below its well established bearish channel, and is looking very weak
- EZU and FXI are also good short candidates, as their charts still look bearish
- FXI is trickier to trade now as the Chinese government has verbally intervened once to halt the selloff in Chinese stocks
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