ETF/ETN Breakouts Week 42 - October 2021: Short-Term Funds To Give You An Edge

Oct. 18, 2021 5:02 AM ETAAPL, BMO, BNKU, BULZ, COPX, ERX, FNGU, GDXD, GDXU, GUSH, IWM, KOLD, NRGU, PPLT, QQQ, SOXL, SPY, TECL, TMV, TQQQ, UTSL, UUP1 Comment9 Likes

Summary

  • The monthly ETF/ETN forecast article highlights some strong sectors, index and commodity funds as a summary of the weekly and daily chat room articles.
  • This report goes out weekly with live daily updates for members and may continue monthly for other readers of my articles.
  • The Momentum Gauges and S&P 500 Momentum Gauges both continue positive from Friday with sector gauges improving through last week.
  • Top fund tracker gains from Oct. 7th bull signal: NUGT +14.1%, ERX +9%, EDC +7.5%, FNGU +7.2%, TECL +6.6%, NAIL +6.4%, FAS +6%.
  • Strong breakout funds on Friday include: BNKU, KOLD, TPOR, BRZU, FAS, BLOK, DBB, UDOW, COPX, some for multiple consecutive weeks.
  • 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 bonus 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 Gauges turn negative, we push pause on the high volatility MDA breakout stocks and move to bearish inverse market funds to offset the downturns. We are finally back to more positive indicators on the various market, S&P 500, and improving sector gauges.

(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 41

We finally saw broad market participation across the sectors last week. Most significant was the strong move in Technology that has been lagging for weeks and may be set to deliver strong momentum - See QQQ and TECL charts below.

(FinViz)

Basic Materials and Energy have been the best performing sectors for weeks, but some shifts are beginning. The weekly performance heat map of the largest ETFs for last week shows why I picked up a leveraged gold fund MicroSectors Gold Miners 3X Leveraged ETN (GDXU) and Nasdaq (technology) leveraged fund ProShares UltraPro QQQ (TQQQ) on early breakouts with Direxion Technology Bull 3x Shares ETF (TECL) and Direxion Daily Semiconductor 3x Bull Shares ETF (SOXL) setting up nicely.

(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

(Source: V&M Breakouts)

According to the closing values on Friday on the sector gauges, Energy and Basic Materials continue very highly positive with strong new moves in Financial and Communication Services (Internet) sectors improving. The positive Utilities sector is at low levels of momentum but positive on the gauges. I am looking for Technology to be the next breakout sector and I remain most heavily weighted in long positions with Energy, Basic Materials and my Nasdaq Index fund. The only exception is my holding in ProShares UltraShort Bloomberg Natural Gas (KOLD) which is a long-term Nat Gas position that I will discuss again in more detail below.

ETF/ETN selections for Week 42

US Stock Market Index Funds:

SPDR S&P 500 Trust ETF (SPY) broke below the positive channel for the first time since November. However, key support held all last week at $430/share and broke above the negative channel from September 2nd in a strong bullish signal to $445/share resistance. $445/share was the prior lower bound of the positive channel from November and the S&P 500 could return back to the original channel if investor sentiment and net MFI inflows continue this rally.

(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. High volatility continues and a breakout started midweek toward another retest of $230/share resistance. 2021 continues to be a very unusual year for the many thousands of small-cap stocks and this tight trading range is contributing to the unusually high number of Momentum Gauge signal changes.

(FinViz)

Invesco QQQ ETF (QQQ) represents the Nasdaq 100 and a very high weighting of the technology mega-cap FANG stocks. The index survived a strong test of key $360/share support level after drifting below the key positive channel support for the first time since early 2020. Early breakout conditions have resumed in favorable conditions for a rally into the positive channel from November. However, both in March and May rebound patterns, there was a short pullback before reaching the top of the channel. These patterns tend to repeat themselves barring any significant external impacts.

(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 breakout from the positive October signal and is returning to retest key resistance at $38/share after declines from the negative signal on September 2nd. An alternative to the FANG+ Index fund that has been whipsawed by Chinese mega-cap stocks is the new MicroSectors FANG & Innovation 3x Leveraged ETN (BULZ) that concentrates on 15 US-only based mega-cap technology stocks and may outperform FNGU.

(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 with a bullish stair step above $60/share. Indicators turned more negative last week as the yield fund fell back to $60/share support. This forecast tool with Direxion Daily 20+ Year Treasury Bear 3x Shares ETF (TMV) may be a reliable longer-term outlook as shown on the weekly chart below. Fed tapering is expected to begin in early November and this move to safety may reflect growing concerns about what comes next month for the markets.

TMV weekly chart:

(FinViz)

Member Selected Sector Funds used on the Bull/Bear combo trades

(Source: V&M Breakouts)

(FinViz)

Financial Sector:

The BMO MicroSectors U.S. Big Banks Index 3X Leveraged ETN (BNKU) tested key resistance last week for the 5th time this year but strong Q3 earnings beat for mega banks are setting up a breakout above $63/share resistance from June. Indicators are turning more positive and had a very strong rally Friday that may lead to a successful breakout that would be extremely positive for the financial sector.

(FinViz)

Technology Sector:

The technology sector finally broke out as illustrated by Direxion Technology Bull 3x Shares ETF after strong declines since the Sept. 2nd negative signal. Price pattern is very similar to the Nasdaq 100 and FANG Index funds and could restart another double-bottom rebound last seen in May.

(FinViz)

The drop in Apple Inc. (AAPL) earlier in September contributed to the major pullback in the FANG Index, Nasdaq 100, and Technology funds. AAPL is now rebounding in a double-bottom support pattern toward a rally into the positive channel. Key test this week will be a sustained breakout above $145/share resistance.

(FinViz)

Utilities Sector:

Utilities experienced very strong declines from the negative September 2nd signal. However, the indicators are turning more positive for the first time since July in early breakout conditions. This pattern is clear on the Direxion Daily Utilities Bull 3X Shares (UTSL) chart. Sector Gauges have turned positive for Utilities but momentum still remains relatively low. A move above $32/share resistance could lead to another test of the top of the channel from April around $38/share.

(FinViz)

Commodities:

Basic Materials continues as one of the leading sectors for the month as the US dollar index drops and prices have been increasing strongly. Currently, aluminum and copper are leading the sector higher and gold/silver have slowed down after making significant gains. The Global X Copper Miners ETF (COPX) shown below is clearing key resistance above $38/share for the first time since prior to June and after many prior failed tests of resistance.

(FinViz)

Energy continues with very high positive levels on the Sector Momentum Gauges for several consecutive weeks. Crude Oil WTI has cleared $80/bbl to prior highs as forecasted and could continue the substantial price breakout with indicators turning more positive with room to run. Goldman Sachs analysts have placed a $90/bbl target on crude by year-end.

(FinViz)

Oil prices continue to move higher to multi-year highs and the BMO MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU) is in a strong bullish stair-step pattern with 94% gains from the September rebound from $100/share. As I have written for several weeks in a row, the record-high oil prices continue to support strong gains for Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2x Shares ETF (GUSH) and Direxion Daily Energy Bull 2X Shares (ERX). Next resistance is around $210/share with indicators becoming more extended in overbought levels last seen in March, but with strong positive momentum.

(FinViz)

The US Dollar Index represented by the Invesco DB USD Bullish ETF (UUP) continues with high volatility and frequent reversals in the last several months. The dollar drop last week was bullish for the markets, especially metals and 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 have been occurring frequently but trending higher over the past month.

(FinViz)

The US Dollar Index has been trending higher since May and began to fall last week as the major metals and basic materials continue to deliver strong gains. Watch to see if precious metals can continue the positive leg higher in the longer negative channels from May.

Aberdeen Standard Physical Platinum Shares ETF (PPLT)

(FinViz)

Copper and platinum look the most positive on the weekly charts with strong potential for other metals to follow.

(FinViz)

MicroSectors Gold Miners 3X Leveraged ETN (GDXU)

(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. Current low levels on the indicators are at the lowest levels for only the 3rd time in 10 years. I am adding to my positions as Natural Gas moves above $6/mmBtu or below $7/share on KOLD.

(FinViz)

Natural gas prices since the Global Financial Crisis at the most overbought levels on the technical indicators in more than 10 years.

(FinViz)

Conclusion

The S&P 500 Momentum Gauges continue positive this week also with positive Market Momentum Gauges through Friday. Sectors are turning more positive on the Sector Gauges and I am becoming more optimistic about a technology rally. 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

JD Henning profile picture
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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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I'm JD Henning, the founder of Value & Momentum Breakouts. I've spent decades studying how to get better returns in the market. I've earned degrees researching markets, and even more importantly, I've spent the time myself as a trader and investor.  I am one of those unusual multi-millionaire, PhD's in finance, former Coast Guard officer with a bunch of certifications ranging from anti-money laundering specialist, investment adviser, to fraud examiner...  who genuinely enjoys helping others do well in the markets.  I'm bringing the fruits of my experience and research to this service.  I am highly accessible to members to answer questions and give guidance.  

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Disclosure: I/we have a beneficial long position in the shares of NRGU, GDXU, TQQQ, 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®, S&P 500 Momentum Gauges® 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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