ETF Trading Opportunities: Sell The Weakest!
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ETF performance is starting to diverge. Can this last, or are markets just taking a breather after their panicked selloff?
Whatever it turns out to be, keep an eye on what the weakest markets are doing.
- Markets are starting to move in a differentiated manner again, but will this last?
- QQQ is still looking very bearish, even as SPY and IWM take a breather
- XLI and XLF still look weak
- XLP and XLY are now both very bearish, as inflation begins to bite into retailers’ margins
- Energy stocks (XLE) are still making new highs for the year, but with macro conditions deteriorating all over the world, how long can demand for oil remain at current levels?
- Fixed Income ETFs still look very bearish
- LQD and EMB look intent on testing their COVID lows
- HYG is likely to break below key support and test its COVID lows
- TLT is testing critical support, amidst high volatility in US rates
Trading Ideas – Performance
Trading Ideas – Commentary
- Entered a straddle on XLU at a strike of $72, expiry Sep ‘22
- Position will be profitable if XLU breaks out of its current 3 week old range
- XLP’s trend turned bearish very quickly last week, and it is no longer a good hedge against a short XLY position
- An outright short against XLP and/or XLY would likely be more profitable
- Looking to enter short positions in IWM, EMB, and possibly EEM on pullbacks
- Re-established shorts in LQD and HYG on breakouts of their previous lows
- Volatility in the markets has led us to exit/stopped us out of:
- Stopped out – IWM 1.43%, XLY 9.26%
- Stopped out – XLI -3.45%, XLF -6.27%, XLP -3.14%
- Exited – LQD 5.56%, HYG 4.16%, EMB 6.29%
- Exited TLT for a gain of 1.72%, as the market focused on the “safe haven” bids narrative at the start of the Russian invasion (end of Feb)
- Exited XLE for a gain of 16.64% after oil’s sharp move higher and immediate reversal on 8 March
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
Trading Ideas – Short
- IWM has broken out to the downside and is a fair distance away from the next major support level at $151.5
- LQD, HYG, EMB
- LQD, HYG, and EMB again look poised for a large move lower, possibly all the way to COVID 2020’s lows
- EEM recently broke below its well established bearish channel, and is looking very weak even with its bounce
- 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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