Here are 3 ETFs to watch this week:
SPDR S&P 500 (SPY)
Last week we wrote :
A break below $165 could lead to another sell-off like we saw in May and June.
It is make or break time for the index, having closed at 1646 yesterday, or $164.77 for SPY. The index broke below its 50-day moving average and that now opens the possibility for a continued fall, though there is support in the range of 1625 to 1635, which could mean the sell-off only has 1 or 2 percent left.
With Asia continuing to sell off, a deeper U.S. sell-off could be developing, but it will take a break below 1625 first. The prior sell-off in June reached 6 percent, and even if the S&P 500 were to hit 1625, it would still only mark a 4 percent decline from the peak. The bulls remain in control here, though in areas mentioned in prior weeks, such as housing and real estate, there are significant breakdowns that could see very concentrated selling and steep losses, even if the overall market remains quite bullish.
iShares MSCI BRIC Index (BKF)
Emerging markets have underperformed for months now, but the accelerating losses in India could further rattle the sector.
India's main stock index spent the past four years in a range between 20,000 and 16,000, with 18,000 marking midpoint resistance and support. With India's main index less than 2 percent above that level, it is close to a break. If it did break support, it the next target would be the 16,000 level, or losses of more than 10 percent from here.
The reason for concern over India is the currency is also depreciating. WisdomTree India Earnings (NYSEARCA:EPI) lost double the 10 percent losses in Indian stocks over the past three months because the rupee is also down about 10 percent, pushing EPI's losses to nearly 20 percent.
Weakness in the rupee and other Asian currencies will increase export competitiveness across emerging markets, and could lead to further devaluation in the region.
BKF is sitting near a recent resistance line, around $35 per share. The fund is in a downtrend and if it cannot stage a rebound here, the next major support area is at the 2009 lows of $20 per share, a loss of more than 40 percent from here. While that sounds like a major bear market, currency devaluation would make up a large chunk of losses.
Not all BRICs are created equal and they vary greatly in their country exposure and individual holdings. For investors who want to go long BRICs, Guggenheim BRIC (NYSEARCA:EEB) has been the best performer. Funds such as SPDR S&P Emerging Asia Pacific (NYSEARCA:GMF) have also held up relatively well.
iShares Barclays 20+ Year Treasury (TLT)
If we search for the one asset that seems to be driving current market activity, it is interest rates. The yields on Treasury bonds, emerging market debt, mortgages and more have all been rising as bond prices sink, taking ETFs such as TLT and iShares iBoxx $ Investment Grade Corporate Bond (NYSEARCA:LQD) down with them and extending those losses into stock markets around the globe.
The rise in interest rates looks extended though, and many bond funds are approaching support levels. LQD is nearing $110, the June low, while TLT is headed towards $100 per share, a 2 year low. It will only take small losses to reach these levels, one bad day of trading and these ETFs will make new multi-year lows. However, there's a strong possibility of a bounce from those levels, and a significant bounce could mark the end of the decline for the S&P 500 Index. It bears close watching though, because if bonds blow through support (and interest rates through resistance), then we will likely see a deeper and prolonged move to the downside.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.