Thursday’s ETF Recap: Mixed Signals

Thursday’s morning action most likely washed out a lot of sellers, leaving room for a Friday rally. At the same time, the major indexes remain in their descending channels, and under declining 50 day moving averages. In other words, this is a great place to be sitting in cash and waiting for the next move.

- SPY (SPY) managed to close positive on a large increase in volume. A bounce up to the 50 day moving average seems likely, but there is plenty of overhead resistance.

- iShares Russell 2000 index ETF (IWM) bounced back above support on increasing volume this afternoon, but sits just under a declining 50 day moving average, and is still in its downtrend channel.

- QQQQ (QQQ) also remains in its descending channel, but is holding support for now. As with the two indexes above, volume increased today.

We now have a higher high, lower low scenario in each index, and basically are still in a sideways trading range. Notice that the volume has been steadily increasing over the past week. Generally speaking, most sector charts remain bearish, but the market could easily change character with a high volume rally. Let’s consider some sector charts:

- Financial Select Sector SPDR ETF (XLF) continued lower today on increased volume. This ETF looks quite oversold here, and I am avoiding financial stocks altogether for now.

- Dow Jones US Real Estate (IYR) ended higher today on increased volume, but is sitting under the 50 day moving average and overhead resistance. We could see some upside here, but I would be surprised to see it rise above 38.00.

- Retail HOLDRS ETF (RTH): Retail showed relative strength today after yesterday’s dismal report, but price sits below a descending 50 day moving average and overhead resistance. Volume patterns are bearish, and the outlook for retail is poor.

- iShares MSCI Brazil Index (EWZ): I started a small long position at the end of day today. Price held support, and we saw a heavy increase in volume. Many commodity-related stocks look prepared to rally, and EWZ will benefit if this occurs.

- iShares FTSE/Xinhua China 25 index ETF (FXI) also saw a huge volume spike. The overhead resistance is a bit troublesome, however.

- Industrial Select Sector SPDR ETF (XLI): Industrials remain in a bearish orientation, trending lower with plenty of overhead resistance and a bearish volume pattern.

- Materials Select Sector SPDR ETF (XLB): The materials ETF was higher today on increased volume, and held support, but sits under a broken trendline and descending 50 day moving average. There’s nothing to do here as far as I’m concerned, unless price breaks below support.

I still think we are due for a commodity rally at some point. RIO (RIO) and SID (SID) are still trending higher with bullish volume patterns.

The trouble with holding overnight positions in this market is one never knows what kind of news will come out. The poor economic news continues to pile up, with no end in sight. With the inauguration coming up and the current administration (thankfully) in its final days, the government is somewhat less active, but we can be sure that President Obama will unveil some new plans once he takes office. There’s nothing wrong with taking a long weekend.

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