ETF Playbook: Defensive to Bearish Outlook

Thursday, we noted that volatility increases around FOMC rate decision releases, and we should understand that the overbought condition at this point in the broader market is rather large - which means buying carries quite a bit of risk. This was in clear view as prices opened higher and then traded lower on expanded volume. We consider this a “negative” at this point.

Further, we should point out 3 ETFs that forged key reversals to the downside - S&P Technology (XLK) , S&P Financials (XLF) and India (IFN).

POTENTIAL LONG TRADES -

√ S&P Energy (XLE) - a bullish pennant is evident, with recent weakness into moving average support having held. We find this bullish.

√ Oil Service (OIH) - prices have cleared the bullish pennant, but failed into the 200-dma. Also, the OIH/SPY ratio is at historically low levels - means whwne we are buyers, then OIH is at the forefront.

√ S&P Materials (XLB) - the 270-dma was violated to the upside; and extended...but closed flat. Sit tight.

POTENTIAL SHORT TRADES -

√ S&P Consumer Discretionary (XLP) - the highs are being approached; and we’ll expect them to prove their merit given the overbought models.

√ Retail (RTH) - new highs were forged again, but prices remain archly extended over their 200-wma - which puts the risk-reward towards lowe prices. We are targeting the $119-to-$122 zone for short positions; yesterdasy printed $118.51....close enough we don’t know.

√ S&P Technology (XLK) - a bearish key reversal to the downside occurred; if it extends lower - then we coulc consider short positions with model support.

√ S&P Financials (XLF) - a bearish key reversal to the downside occurred; if it extends lower - then we coulc consider short positions with model support.

√ Broker-Dealers (IAI) - Wednesday’s rally turned lower from previous high resistance; and extended lower Thursday. We find this bearish.

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