Do not be fooled by last Friday's mini bounce for it may be of the dead cat variety.
That is the kind of way saying it is hard to buy into one decent day for stocks as being a harbinger of near-term ebullience after all three of the major U.S. indexes closed lower by at least 2.5 percent for the week. Thursday marked the worst one-day performance for U.S. equities since 2011 an the benchmark index is now off 4.6 percent from its May high.
Of course much of this sudden turbulence can be pinned on the Federal Reserve and Chairman Ben Bernanke. Put simply, global equity markets have become addicted to the accommodating policies set forth by the Fed and other central banks over the past few years. However, when the source of an addiction runs dry, withdrawal follows and that is rarely pleasant. Stocks showed as much last week.
Bulls will say June usually is not a good month for stocks, but that some end-of-quarter window dressing could be seen this week. Bears are salivating over the prospects of said window dressing failing and the imminent start of July, usually a bad month for stocks. Either way, keep an eye on these ETFs this week.
SPDR S&P Homebuilders ETF (XHB) Lack of participation by the SPDR S&P Homebuilders ETF in Friday's almost rally could be telling. What has been one of the best-performing sector ETFs for a couple of years now is currently in a bad way after losing 6.4 percent last week. The fund is now down almost nine percent in the past month.
There very well may be a near-term bounce in XHB and the rival iShares Dow Jones US Home Construction Index Fund (ITB) as home buyers look to lock in 30-year mortgage rates below four percent, but that does not change the fact that mortgage rates are rising. Adding to the woes for ITB and XHB are lumber prices. There is a significant disconnect between lumber futures and, until recently, the performance of home builder stocks. Previous disconnects of this magnitude have been bad the stocks found in ITB and XHB.
ProShares UltraShort FTSE China 25 (FXP) Talk about a dead cat bounce. That was exactly what was seen in various long China ETFs last Friday. Sure, stocks in the world's second-largest economy are cheap right now. They have been for more than a year. Stocks in a lot of other emerging markets are cheap, too, and that has not proven to be an invitation to buy.
China, however, is a special case. Not only has the country been delivering a raft of mediocre economic data, but the banking system there is fragile at best. That is not a good thing when China is home to four of the world's 10-largest banks. It is also not a good thing for many China ETFs, which feature allocations to bank stocks that are borderline obscene. If FXP breaks resistance at $26, it could have upside to the low $30s.
Market Vectors Gold Miners ETF (GDX) An old favorite makes a return appearance on this list and why not? A one-week loss of 11.5 percent for a non-leveraged ETF is worthy of further examination. More specifically, it might be worthy of an endorsement to buy puts or consider GDX's volatile bearish friend, the Direxion Daily Gold Miners Bear 3X Shares (DUST).
Speaking of DUST, that ETF has a bullish equivalent, the Direxion Daily Gold Miners Bull 3X Shares (NUGT). All NUGT did last week was lose over 34 percent. The ETF is now dangerously close to its pre-reverse split price seen 10 weeks ago.
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