Here are 3 ETFs to watch this week:
SPDR S&P 500 (SPY)
Two weeks ago we wrote:
A break below $165 could lead to another sell-off like we saw in May and June.
That advice is still in effect, but the price has moved lower to about $162.
Last week SPDR S&P 500 (NYSEARCA:SPY) briefly fell below $165 before recovering and moving higher. This week the market looked primed for a rebound, but shares slipped lower on Monday. Weakness tends to beget weakness in the stock market and while a move higher would turn things towards the bull's favor, right now the more likely scenario is a slip towards $162. From Monday's close at $166, this would mean a loss of 2.4 percent, hardly a big decline by any means. On the bullish side, SPY would need to clear $169 and continue moving higher, for a gain of about 2 percent from Monday's close.
That's a very tight window for the S&P 500 Index because for the moment, the bulls and bears are fighting it out in a small space. Neither side has been able to pull the market in one direction for a sustained period, which is what marks this as a consolidation phase. Even if the bears can pull SPY down through recent support levels, there is stronger support around $156 to $158, a loss of only about 6 percent from here. In sum, that would make for a solid mid-rally correction and set up a bullish run for late summer and early autumn.
iShares Nasdaq Biotechnology (IBB)
Although the overall market has trended slightly bearish of late, losses have been concentrated in sectors such as housing and real estate, while the global market has been weighed down by acute losses in India and Indonesia. For the bulls, the place to watch is the strong sectors showing the greatest momentum. One of these is biotechnology, with iShares Nasdaq Biotechnology (NASDAQ:IBB) being one of the largest biotech funds.
IBB and biotech led the market higher yesterday on news that top ten holding Amgen (AMGN; 8 percent of IBB) announced it was buying Onyx Pharma (ONXX; 2.4 percent of IBB). The bounce higher is a positive sign for the sector and the rest of the market because acquiring companies typically decline when a buyout is announced. The move higher in AMGN shows optimism and bullishness among investors in this momentum leading sector.
That said, IBB peaked above $201 per share in early August; it closed at $197.10 on Monday. If IBB can rally more than 2 percent (which it did on Monday), it will breakout to a new 52-week high, sending a bullish signal for the overall stock market as well. If the broader market is going to turn bullish instead of staying in this bearish consolidation phase, IBB will be one of the first signs.
On the flip side, IBB has support around $180 per share. Were IBB to fall that much, it would be a nearly 9 percent loss, and very close to what we would expect if the S&P 500 Index fell 6 percent or so. A failure to move to a new high and then a break lower would indicate the market has further selling to do.
Market Vectors Indonesia (IDX)
The word crisis is going to be used a lot with Indonesia in the coming days. The rupiah lost more than 4 percent versus the U.S. dollar in Asia overnight, while the stock market tumbled 3 percent, for a combined loss of 7 percent in U.S. dollars. Market Vectors Indonesia (NYSEARCA:IDX) may or may not fall by as much today because IDX is not an exact replica of the Jakarta exchange. In addition, since the Indonesian market is closed, traders will be basing today's trades in part on what they expect tomorrow to bring.
The losses have been steep this month; IDX is down more than 20 percent in the past nine trading day and with no signs of a slowdown, talk of a crisis is heating up. At this point it is still premature to say a crisis is underway, but financial markets are signaling there is a problem. A 1997 style Asian Crisis is unlikely, but if Indonesia continues to deteriorate, the economic data will follow and then the region could have a serious problem. India is already weak and analysts have begun to mention Malaysia as the next potential domino.
There is some support for IDX around $20, but it if breaks, the next level of strong support is the 2009 lows, a loss of more than 66 percent from current prices. Again, there is no economic crisis yet, but if we don't see the losses in IDX slow down, the decline in stocks and the currency will itself be a major crisis.