The following are 3 ETFs you may want to watch this week: iShares U.S. Home Construction (ITB) Housing data out today could impact the home construction sector, but the larger story is the post-FOMC rally has evaporated in the broader market. Asian markets were down in Tuesday trading, while European markets were up. If losses carry through to the U.S. open, the sectors that haven’t already given up their post-FOMC gains may do so. ITB appeared to break the bear case when it surged on Wednesday. The Fed’s decision not to taper caught the market off guard and sent shares higher. Since it was a genuine surprise to many analysts, the rally should have had legs, but with the broader indexes falling below their pre-FOMC price levels, the rally is no more. The 50-day moving average served as resistance for ITB until its recent rally. Shares closed Monday above that level, which was $21.84. That average will dip some today due to recent price action, but any loss above 2 percent could push ITB below that level. A move below doesn’t signal a renewed breakdown for ITB, but it will get the bears’ attention. Bulls can rest easy as long as ITB holds above $19.50. Traders looking to play housing also need to keep one eye on interest rates. Thus far, rates have not been the explanation for the drop in ITB; rates are still moving lower. Depending on your forecast, that either means ITB could breakdown if interest rates increase, or it means falling rates will keep ITB from declining much further. First Trust Dow Jones Internet (FDN) FDN has been a market leader in the past month and shares remain very strong relative to the overall market. However, FDN also holds some high-flying stocks such as Priceline (PCLN) and LinkedIn (LKND). Where PCLN has a P/E ratio of about 30, LNKD has a P/E above 900 and trades like an Internet stock from 1999. Bears have been watching the stock rise and rise, with seemingly no weakness in its advance. Shares in LNKD are finally starting to look a bit weak, with shares about $9 above a short-term support level of $230. Above that level, shares could rally once more, but below, traders would look for LNKD to close the gap it made in August, when it jumped from below $210 to above $230. That’s a roughly 10 percent drop from current levels. LNKD can’t weigh down FDN by itself, but other top 10 holdings such as Juniper (JNPR) and Netflix (NFLX) are adding to the weight. LNKD does represent the buoyant bullish attitude we saw in late August and into September, however, and a larger decline could be swift given the rapid advance. If FDN does weaken, it has support around the 50-day moving average, currently about $50. As long as the broader market doesn’t show serious signs of weakness, a drop here would be a buying opportunity. SPDR Financials (XLF) Financials have been weighing on the market post-FOMC. It is the second largest sector in the S&P 500 Index and was a contributor to the broad index’s rise this year until August, when financials began to underperform. We believed the underperformance was the market’s reaction to the coming taper in September, via higher interest rates. After last week’s FOMC meeting and the taper no-go, financials initially surged, but since then, they have given up all their gains and then some. XLF failed to make a new high last week, leaving the late July high as the high-water mark in 2013. Regional bank shares have been weak, as well as the mega banks such as J.P. Morgan (JPM). Shares should have responded positively to the non-taper, but if they continue to slide, a further breakdown is likely because shares are obviously responding to other factors. Given the weight of financials in the S&P 500 Index, the direction in XLF and financial sector ETFs will greatly influence the direction of the market.
Posted on: Tue, 24 Sep 2013 16:06:46 +0000
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