Further Confirmation Materials ETFs Are Imperiled

With the S&P 500 up about 0.7 percent Tuesday and having touched a new record high, it is not hard to find the laggards among sector ETFs. There are a few funds tracking the oil and semiconductor sub-segments that are in the red, but those losses are not yet alarming.

The real cause for concern remains the materials sector. The Materials Select Sector SPDR (NYSE:XLB) is down 0.54 percent today, and while that may not sound like much, remember that XLB was by far the worst performer of the nine sector SPDRs in the first quarter. XLB's first-quarter gain was not even half of what the SPDR S&P 500 (NYSE:SPY) returned.

Tuesday may be just one day, but the problem for XLB and other materials ETFs is that this far from the worst day this year these funds have been laggards. As lower beta sectors such as consumer staples and health care have lead the broader market higher, materials names have under-performed perhaps foreshadowing imminent declines.

XLB is not the only materials ETF offender, either. As Benzinga noted on Monday, the SPDR S&P Metals & Mining ETF (NYSE:XME) is in serious technical trouble. That ETF is off another 1.5 percent today and has now lost more than 16.5 percent year-to-date.

With gold futures being hammered, the Market Vectors Gold Miners ETF (NYSE:GDX) and the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) are both off more than three percent.

In further proof that traders hate gold mining stocks and reverse splits are a joke, the Direxion Daily Gold Miners 3X Bull Shares (NYSE:NUGT) is down nearly 11 percent today, the ETF's first trading day after undergoing a four-for-one reverse split.

There is more bad news. The iShares Dow Jones US Basic Materials Index Fund (NYSE:IYM) is flirting with support in the $68.80 area. A break there probably takes the ETF back to $65-$66. If the Vanguard Materials ETF (NYSE:VAW) cannot hold $87, it likely returns to $82.

Another way of illustrating the dark clouds hanging over materials ETFs right now is this. Look at a heat map of inverse ETFs and exclude the ones that are trading on a post-split basis today. The noteworthy, legitimate gainer is the ProShares UltraShort Basic Materials (NYSE:SMN), which is close to staging a breakout of its own.

SMN is not the largest nor is it the most heavily traded inverse ETF out there. However, it is up nearly one percent on a day when the S&P 500 hit a new record high and that is not a good sign for long materials ETFs.

For more on materials ETFs, click here.

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