The risk-on trade may be in serious jeopardy, and that may be bad for the entire market. When digging deeper into ETF trends, it seems that many that have led the market higher are now beginning to roll-over.
The best performing sectors have all been risk-on in sentiment, while anything tied to global growth or risk-off has underperformed. Biotech, Technology, and Semis have all been far and away, the best performing sectors. If these sectors begin to retreat, it likely means the big market rally will turn lower too.
Biotech (XBI)
The XBI has been the winner this year, rising by 18%. They’re now two bearish signals that have been presented. First, the relative strength has flatlined since April, despite the ETF rising to record highs, a bearish divergence. Now for the first time, we are seeing the RSI sink, and that would suggest that all that bullish momentum is leaving the ETF and sector.
Additionally, the ETF has now broken a significant uptrend, a drop below $110 likely triggers a deeper move to $105 or less.
Technology (XLK)
The technology ETF XLK has risen by almost 15% this year. It, too, has a bearish divergence in the RSI, which has now fallen to the lowest level in some time. Additionally, like the XBI, the XLK has broken an enormous uptrend that has been in place since mid-April. Based on the current set up, it appears the ETF could fall to around $99.
Semis (SMH)
The SMH ETF is also flashing the same bearish divergence on the RSI, but it is yet to break the uptrend. With the potential to drop to around $149.
Cooper
Meanwhile, copper prices have been weakening and showing many of the same characteristics as the sector listed above, with a chance for the metal to fall to around $2.65.
10-Year Yields
We have seen a big move lower in yields, with the 10-Year testing support around 55 bps. A break below that support sends yields to around 35 bps.
Finally, the high yield ETF HYG could be on its way back to $80.50.
Just keep an eye on these, they will tell you the direction of the markets next move.