ETF Outlook for the Week of August 4, 2014
Last week the S&P 500 suffered a 2.7 percent drop after a series of negative events caused investors to sell first and ask questions later, sending the SPDR S&P 500 ETF (NYSE:SPY) to its lowest level since late May.
No one news item sent stocks lower; it was more like death by a million paper cuts.
The concerns that shook investors included a Chicago PMI that fell by the most since 2008, several poor earnings reports, wage increase-spooked inflation fears, a major Portuguese bank exposed as on the verge of a major bailout, Argentina's default and a jobs number that was not as strong as the headline appeared.
Related Link: All Eyes On the S&P 500 ETF
All in all, stocks were overdue for a pullback. The S&P 500 is now down 3.2 percent from the all-time high set last month.
Looking back at the last 12 months, the index has pulled back to the lower end of the trading range, where it has bounced in the past. Combine that with a seemingly oversold RSI and the odds of the market bouncing back this week are high.
SPDR Consumer Discretionary ETF (NYSE:XLY)
With several of the top 10 holdings reporting earnings this week, the ETF should be on the move.
Last week XLY surprisingly held up better than the overall market with a loss of 1.75 percent. The ETF closed the week at $65.65, just above the 200-day moving average of $65.09.
In the past year the indicator has proven to be a support level and buying opportunity. A breach below the $65 area this week would be troublesome. On the flipside, if XLY can hold support it could end up being a strong buying opportunity.
PowerShares DB U.S. Dollar Index Bullish ETF (NYSE:UUP)
The ETF fell a few pennies on Friday but ended the week just off a multi-month high after gaining 0.4 percent over the last five days. Strength has been driven by the increasing concern over inflation and higher interest rates, plus the fact that the euro and Japanese yen are moving in the opposite direction.
iShares Barclays 20+ Year Treasury Bond ETF (NYSE:TLT)
If the sell-off in stocks continues it will likely lead to more money flowing into bonds and TLT.
The ETF closed up 0.5 percent on Friday after initially falling on the employment report. For the week it was down 1 percent, even as stocks were also lower. A spike in interest rates drove this earlier in the week. Initial support is at $113 per share.
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