ETF/ETN Breakouts Week 39 - September 2021: Short-Term Funds To Give You An Edge

Sep. 26, 2021 4:08 PM ETAAPL, BNKU, ERY, FNGU, GUSH, IWM, KOLD, LABU, NRGU, QQQ, SOXL, SPY, TMV, UTSL, UUP1 Comment

Summary

  • This is the first public release of the weekly ETF/ETN forecast article, highlighting some strong sectors, index funds and commodities for your consideration.
  • This report goes out weekly with live daily updates for members and may continue monthly for other readers of my articles.
  • Market Momentum Gauges and the S&P 500 Momentum Gauges are both positive from the close Friday.
  • Wide divergence between sectors continues as US dollar index moves higher Friday in bearish move while bond yields continue higher in bullish move.
  • Strong breakout funds from Friday include: YANG, LABD, BOIL, DRV, DPST, TMV, NRGU, UNG, TPOR, BDRY, BNKU.
  • This idea was discussed in more depth with members of my private investing community, Value & Momentum Breakouts. Learn More »

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Introduction

This article continues the weekly ETF/ETN forecasts with technical charts and enhancements to the Bull/Bear Trading Signals for members.

As long time members of my service know well, when the Momentum Gauge signals change we change our positions to capture strong gains or to offset the major market downturns with inverse funds. We are finally back to more positive indicators on the various market, S&P 500, and improving sector gauges. Returns on member selected ETF/ETN bull/bear combo funds are shown below by following the Momentum Gauge signals.

(Source: V&M Breakouts)

This new ETF/ETN article now provides additional weekly insight into the Bull/Bear Trading Signals and will be released monthly for non-members:

V&M Breakouts ETF Bull/Bear Trading Signals: 2020 Year-End Report Card

Returns by Sector and Type for Week 38

(FinViz)

The weekly performance heat map of the largest ETFs for last week shows the Energy sector gains continuing in positive momentum conditions.

(FinViz)

Members are encouraged to follow the Market Momentum Gauges, S&P 500 Momentum Gauges, and the individual Sector Momentum Gauges for improved results and lower risk during the week.

Sector Momentum Gauges

According to the closing values Friday on the sector gauges, Energy continues very highly positive with sustaining momentum while the positive Real Estate conditions are in decline. Financial, Industrial, and Communications sectors are also very close to confirming breakouts with improving momentum at the close and we could see strong gains in these sectors next week. The Technology sector gained last week based on higher weighting of large cap stocks, but remains negative on the Sector Gauges due to the lack of broad momentum participation among all technology stocks. I remain most heavily weighted in long positions with Energy and Financial funds and stocks. The only exception is my holding in KOLD which is a long term position that I will discuss in more detail below.

ETF/ETN selections for Week 39

US Stock Market Index Funds:

SPDR S&P 500 Trust ETF (SPY) last week on the 2nd largest ever recorded quad-witching option expiration week in market history broke below key support from November. Despite the break below $445/share support, the index has rebounded sharply higher toward reentry into the positive price channel.

(FinViz)

Last week the SPY fund rebounded from lows with strong volume in a positive retest of 445 resistance that was the prior support. A move above this key level next week will mark a return of the S&P 500 back to the positive channel from November and strong positive market conditions.

(FinViz)

We are well over 200 days in a very long stretch for the market indices without a major pullback. There have only been two other times since the Great Financial Crisis - GFC - that the S&P 500 index has gone longer without at least a -5% pullback.

(Source: BofA Global Research)

This unprecedented performance in the major indices rivals the roaring 1920s before the bubble burst in a severe correction.

(Source: BofA Global Research)

The iShares Russell 2000 ETF (IWM) small caps continue in the trading range between $210 and $230/share since February. A strong reversal last week at $215 support is moving toward a retest of the top of the range. However, as the sector charts above illustrate, this move is on wide divergence led so far by energy and financial stocks.

(FinViz)

Invesco QQQ ETF (QQQ) represents the Nasdaq 100 and a very high weighting of the technology mega cap FANG stocks. This fund continues in a strong positive channel as illustrated on the weekly chart below. Unlike the flatter trading range of small caps, this large cap index fund has been in a steady climb for more than a year. The disparity of performance between FANG stocks and the Russell 2000 small caps is more evident here.

(FinViz)

MEGA Cap Index: The FANG Index mega cap stocks that account for over 12.6% of the S&P 500 represent a disproportionately high percentage of the gains in the large cap S&P 500 Index.

(Source: Yardeni Research, Inc.)

The BMO MicroSectors FANG+ Index 3X Leveraged ETN (FNGU) has been in decline into September, led lower especially by Chinese mega cap stocks like BABA on the technology crackdowns. The fund has rebounded above the negative channel last week back to strong $37/share resistance with indicators mixed going into next week.

(FinViz)

Bond Funds: Bond yields typically reflect investor long term market outlook and the current trend on the weekly chart has been a long consolidation. The support at $54/share has been tested numerous times and is heading toward a retest of resistance at $60/share. This forecast tool with Direxion Daily 20+ Year Treasury Bear 3x Shares ETF (TMV) may be a reliable long term outlook as shown on the weekly chart below.

TMV weekly chart:

(FinViz)

TMV intraday chart shows the very high recent volatility and a strong positive move last week toward another retest of $60/share resistance. This is very positive for the financial sector in particular and the market more generally. Watch for yields to continue to rise next week.

(FinViz)

Selected Sector Fund Charts used on the Bull/Bear combo trades

(FinViz)

Financial Sector: The BMO MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU) broke above the negative channel into September last week in a rally very similar to the TMV chart above. The fund is in short term overbought levels and likely to move back into the new positive channel with price consolidating in bullish stair stepping pattern.

(FinViz)

Technology Sector: The technology sector continues to consolidate as illustrated by Direxion Daily Semiconductor 3x Bull Shares ETF (SOXL). Price is still pushing against strong resistance at prior high $47/share and indicators are all positive with room to run to next resistance at $51/share at the top of the positive channel.

(FinViz)

The drop in Apple, Inc. (AAPL) earlier in September has put the major FANG, Nasdaq 100, and Technology funds in a downtrend that only reversed last week. Apple is retesting $147/share level and showing bullish stair stepping pattern for positive conditions next week.

(FinViz)

Utilities Sector: Utilities have been a strong defensive (inverse) position since the Momentum Gauges turned negative on July 2nd. This pattern is clear on the Direxion Daily Utilities Bull 3X Shares (UTSL) chart. However, the high market volatility is even showing up in the low volatility utility stocks with numerous large reversals since August 27 Positive signal in a generally negative channel. The fund has broken below the positive channel from March, showing a departure from defensive high yield stocks and potentially more risk on toward the Tech and Healthcare sectors.

(FinViz)

Direxion Daily S&P Biotech Bull 3X Shares (LABU) broke above the negative channel last week for a second retest of $66/share resistance but failed to break out. Price has returned to strong support around $62/share.

(FinViz)

Commodities:

Energy continues lower off the July highs since the July 2nd negative signal, but crude oil is rebounding over the weekend to above $70/bbl and we will see how long this holds into the week. As shown below on the long term weekly chart, oil prices have been a reliable leading indicator of the S&P 500 for the past several years on the parallel charts of the S&P 500 vs. crude oil WTI from 2016 to 2021:

(FinViz)

Oil prices have cleared key resistance levels and this is especially clear on the BMO MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU) with next resistance at 142 level. Crude oil is moving higher again over the weekend near $74/bbl and continuing from our last signal to deliver strong gains for Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2x Shares ETF (GUSH) and Direxion Daily Energy Bull 2X Shares (ERX).

(FinViz)

Crude oil WTI continues higher over the weekend in a new positive channel discussed last week with price above $73/bbl ahead of the market open tomorrow. Conditions remain favorable for breakout to prior highs above $75/bbl.

Crude Oil futures

(FinViz)

The US Dollar Index represented by the Invesco DB US Dollar Bullish ETF (UUP) continues with high volatility and frequent reversals in the last several months. The dollar breakout Friday is bearish for the markets especially metals, commodities, priced in dollars. Some of this volatility is in anticipation of the Fed tapering and short term reactions to different Federal Reserve communications. Reversals are occurring frequently at an average of 4-5 days.

(FinViz)

The US Dollar Index reversed again this past week with gains that are negative for the metals longer term. The weekly trend of the major metals has been negative while the dollar drifts higher in this uncertain high reversal condition since June.

(FinViz)

My Speculative Long Term view on Natural Gas

I am holding a speculative long term position in ProShares UltraShort Bloomberg Natural Gas (KOLD) on the basis that prices are at high overbought levels and could recover sharply over the next year.

(FinViz)

KOLD is at the lowest levels since December 2018 while natural gas prices are at the highest levels since 2014. The last time this occurred KOLD gained over 400% in a year and over 850% in 18 months.

(FinViz)

Conclusion

The S&P 500 Momentum Gauges continue positive this week also with positive Market Momentum Gauges through Friday. Sectors remain mostly negative on the Sector Gauges. Selective investing is key in this environment and a close watch on the bond yield and US dollar index charts that will give us more insight during the week whether these trends will sustain their momentum.

All the very best to you, stay safe and healthy and have a great week of trading!

JD Henning, PhD, MBA, CFE, CAMS



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This article was written by

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Welcome! I am a Finance PhD, MBA, investment adviser, fraud examiner and certified anti-money laundering specialist with more than 30 years trading and investing stocks and other securities. I'm the founder of Value & Momentum Breakouts.

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Disclosure: I/we have a beneficial long position in the shares of NRGU, DPST, BNKU, KOLD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I continue to follow the Market Momentum Gauge® and Sector Momentum Gauge® signals. I adjust my exposure ahead of weekends and holidays to minimize the risk from these high volatility 3x funds that may not be appropriate investments for your portfolio. Readers are highly encouraged to consider your own optimal asset allocation strategies to diversify risks and enhance returns.

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