ETF – Page 2 – Adaptiv

Category: ETF

Mother Russia!

March 17, 2016April 13, 2022

While most are watching U.S. equities rip higher, we’re continuing to see strength from emerging markets. Previously, we highlighted the breakout taking place in Brazil. Up 13% since we released that research, Brazil hasn’t disappointed. Though nothing is guaranteed, and price knows more than we do, we are seeing a similar development out of Russia.

Using a weekly chart of RSX (an ETF that mirrors the Russian Trading System Index), you’ll see exactly what we’re talking about.

Russia has broken out of steepening downtrend that dates back to 2011. With a a 67% drawdown since then, Russian equities have been subject to significant discounting. We’re not interested in buying stocks that are in a downtrend. But when the supply and demand dynamic changes, and buyers step into the marketplace, we sit up and take notice. In late 2014, and recently again earlier this year, buyers stepped in near the 12.00 level. More importantly, there was enough buying demand to push RSX through the downtrend line (in green), signaling a potential change in trend.

We can take advantage of this opportunity by making sure we identify the risk involved with this trade. We should never enter a trade without understanding potential risk versus potential reward. Technical analysis allows us to do just that. Here’s a daily chart of RSX:

The breakout is clear. There is more demand than supply, causing prices to breakout. We like that. We also see a logical level (16.00) where buyers should step in if there is any pull back in prices. And if they don’t, we’re out of the trade. It’s as simple as that. We’re long RSX above 16.00. Below 16.00, we’re out. Bila ne bila.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Breakout

Singapore Straits About to Spout Off

March 11, 2016April 13, 2022

If you follow us on Twitter (@360Research), it’s not a secret that we’ve been talking about emerging markets and other international indexes outperforming US stocks. One such market is in Singapore. After seeing the Straits Times index decline 30% over the last year, we’re now seeing new demand enter Singaporean stocks. The Straits Times Index is a capitalization-weighted stock market index that is a benchmark for the Singapore stock market. It tracks the performance of the top 30 companies listed on the Singapore exchange. And it’s a great barometer for us to look at when trying to identify our next opportunity in Singapore.

Using the weekly chart below, we can see the downtrend in prices that began in early 2015. We can also see that in early 2016, prices dropped below the late 2011 low, only to sharply reverse and break out from the downtrend (upper green trend line).

Looking closer at The Straits times using a two-year daily chart, we can see the false breakdown and subsequent clean breakout of this important index.

We don’t have the ability to trade the Straits Times Index directly. But in today’s world, we have access to all sorts of investment vehicles that grant us entrance into many hard-to-reach markets. For us, and this article, the ETF: EWS is our vehicle of choice. It mirrors the Straits Times Index, allowing us to appropriately manage our trade and help us identify risk and reward. We should never enter a trade without knowing when we’re wrong. Remember, the markets don’t care what we think. And we don’t care about being right. We care about being on the right side of the trade.

When looking at the daily chart of EWS, we notice that 10.40 is a logical area of previous supply that has now become an area where demand should step in. If price drops below that level, we’re no longer interested in this trade. It’s simple, we’re long above 10.40, and out below it. Our upside reward is between 5 and 15%. We like a lot of what we’re seeing from Singapore, the Merlion and even the Durian.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Brazil

Brazilian Breakout

March 3, 2016April 13, 2022

For the past 5 years, Brazilian stocks have been hammered. Since the top in 2011, equities in Brazil have experienced a 74% drop. But that appears to be changing. You wouldn’t think that if you used the financial media to make your investment decisions. You would think that the worst is yet to come. For example, take a look at this headline that posted just a few hours ago.

If you followed our research before, you know we’re not big fans of financial media. It’s not that we have anything against reporters. After all, they have a job to do. But at 360 Investment Research, we don’t use financial headlines to invest. It’s noise. We use price.

Let’s take a look at what’s really happening in Brazilian stocks. Below, is a weekly chart of the Brazilian ETF EWZ. It dates back to 2008 and shows the bottom put in late that year during the Great Financial Crisis (GFC). In addition, we can see the significant drop in Brazilian stocks dating back to 2011. We also notice a significant development – price has recently broken out from an 18-month downtrend. Just as significant, we can see that price originally broke below the late 2008 lows, but quickly reversed back up over that level. This is known as a false breakdown. And from false moves come fast moves in the opposite direction.

Taking a closer look, using a daily chart, we can see just how clean this breakout is.

We are a fan of this setup. Our risk is well defined while the upside reward is definitely significant. We can see previous areas of supply that mark our targets for exiting any trade long. These levels represent anywhere from an 8% to 40% return. Obviously, nothing is guaranteed and we don’t marry our opinions. If EWZ drops below 21.00, we’re no longer interested. Price knows more than we do. Price knows more than the financial media.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Commodity

Silver: It’s Time

May 14, 2015April 13, 2022

When we look for low risk / high reward entries in any investment, we need to be patient, waiting for those times where our risk and reward are well defined. Way back in November, we told you about an upcoming opportunity in Silver. Using cycles, we were looking for a low sometime between November and February along with a downside target near 14.00. Here’s the chart from back in November.

(click to enlarge)

How do we look today?

Price didn’t quite reach 14.00, but we’re not picky. We’re seeing a nice base with lows near our expected cycle low. In addition, we’re seeing price breakout from a 2.5 year downward trendline (dashed green line) and overhead resistance (supply) near 16.50. Adding evidence to our low risk entry is the beautiful divergence in momentum, making higher lows while price makes even lows. This is a significant move with well defined risk. Let’s zoom in and get tactical.

As you can see, the breakout breaches two significant areas of resistance. From a risk management standpoint, we have no reason to own it below 16.20. Our initial upward target is 18ish, but we will be watching price action closely if/when it reaches the solid green downward trendline, which has been significant resistance dating back to the 2011 top in this industrial metal. If that trendline is broken, we could have a rip-your-face-off rally. But let’s not get ahead of price. Let’s let it show us what to do. Trade safe.

Disclosure: The author is long SLV.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. Simply put, you are an adult. You invest based on your own decisions.

Commodity

Striking Oil

March 22, 2015April 13, 2022

It’s hard to go a day without hearing or reading about the recent collapse in oil prices. And why wouldn’t we? The 60% drop in price over the past nine months is one of the greatest in history. In fact, the entire commodities complex has been hit hard during this time. But really, it should come as no surprise to investors that these price declines have taken place while the U.S. dollar has rapidly increased in value during this timeframe. Make sense, doesn’t it? Those items priced in U.S. dollars will decrease in price as the value of the U.S. dollar increases.

(Source: charliebilello.tumblr.com)

Everything from agricultural and soft commodities to industrial and precious metals have suffered significant price declines as the dollar has rocketed upward. Even though this price correction should not be a surprise, investors have become exceedingly pessimistic towards commodities. Such pessimism in the commodities space has not been this strong since the 2008-2009 financial collapse.

(Source: Shortsideoflong and SentimenTrader)

With such negativity prevalent in this space, we sit up, take notice, and look for opportunities. We think we’ve identified a well defined opportunity in oil, the focus of today’s article. Our oil investment tool of choice is USO, the United States Oil Fund – an ETF that tracks light, sweet crude oil. Looking at the two year chart of oil’s daily price below, we can see its impressive decline. And, we can see that it has developed a nice divergence between price and momentum (as measured by Wilder’s RSI).

Zooming in, we can see the divergence up close and note the potential for a false breakdown if 16.75 is reclaimed. With the amount of investors shorting oil, the aforementioned set-up is ripe for a sharp reversal. If 16.75 can be reclaimed and the downward green trendline broken, price could move rapidly upward towards February’s highs (+19%) and even a 38.2% retracement of this epic collapse, which would be a 45% gain from these levels.

We like USO above 16.75. There is no reason to own it below that level, which lines up with the January lows. Our risk is defined. We don’t care if we own it above 16.75 and quickly turns back down and we get stopped out. Getting stopped out means we did something right – proper risk management. And if it doesn’t breakout above 16.75, no worries. We’ll wait some more. With this opportunity, our risk is well defined and the reward is heavily skewed in our favor. We’ll own it above 16.75. Below that, we’re not interested.

Disclosure: the author will consider a long position in USO based on the criteria provided in the article.

Disclaimer: nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. Simply put, you are an adult. You invest based on your own decisions.

Bonds

Yields Retreat As Bonds Bounce Off Logical Resistance

February 25, 2015April 13, 2022

Technical analysis allows us to identify logical points of increased supply or demand for any liquid security. We can find places where a change in the direction of price is likely. As previously mentioned, this applies to any liquid security we can chart, including bonds. Over the past week, the financial media has been quick to point out the “spike in bond yields.” While true, bond yields have moved quickly upward since the beginning of February, the bigger trend (yields decreasing) remains intact. And as of the past few days, we find that bonds and yields are reacting to logical points of resistance. Let’s take a look at the 10 Year Treasury Note Yield ($TNX) and the 20+ Year Bond Fund ETF from Barclays (TLT) so you can see what we see. But before we get too far, it should be remembered that the relationship of bond yield to bond price is simply this: when the bond price goes up, its yield goes down and vice versa. Technically said, a bond’s price and its yield are inversely related. Ok, on to the charts.

First, the weekly chart of the 10 Year Treasury Note. Notice that for 20 years now, the yield on the 10 Year has been steadily declining within a well defined trend as marked by the green channel. Annotated in orange is the incredible “spike in yields” being reported. As you can see, this is minor in relation to the overall trend. We do concede that someday, yields will breakout of this channel and begin a new upward trend, bringing many financial ramifications with it. We’ll make sure to let you know when that happens. But for the time being, the overall trend in yields is down.

Taking a closer look at the 10 Year Yield below, we find that its yield has reversed course upon reaching 4 different levels of significant resistance:

The mid-channel line dating back 20 years
Demand/supply dating back to 2009
38.2% Fibonacci retracement from 2013 highs
Former support turned resistance dating back to 2012

This is a logical move and one that indicates a high probability of resuming the downward pressure on yields.

The resumption in downward yield pressure and upward bond price movement can also be seen by taking a look at the 20+ Year Bond ETF, TLT. Looking at the chart below, it’s easy to see that prices dropped from January highs and have so far found demand around the 126 level, which used to be a prior supply/resistance level. In addition, this bond ETF continues to move within an upward slopping series of tram lines. Until the 126 level and lower boundary tram line is broken, the trend in bond prices remains up. With bonds finding support here and major stock markets breaking out across the globe, it’s our opinion that we’re likely headed into an environment of rising bonds and stocks. In the end, however, that is our opinion. We don’t trade on our opinion. We trade on price, the only opinion that matters.

Click here to receive insight like this in your in-box: Free Email Notification Sign-up

Equity

Important Levels On S&P 500 (SPY) Identified

January 17, 2015April 13, 2022

Over the past two months, we’ve provided evidence that the probability of a correction in the US stock market was increasing. We have not made a full blown correction call because the most important piece of evidence still pointed to higher prices in the overall US stock market. However, that most important piece of evidence, price, has begun to capitulate. What does that mean? If you remember our article about price, you’ll remember that it is the only thing that matters. You can have every indicator, piece of inside information, or strong opinion you want. In the end, price is always right [anyone envision Bob Barker when you read that?]. Price trumps all other pieces of information you deem to be important. And since releasing our research, price has begun to deteriorate. The price of the S&P 500 is lower than it was when we began to identify problems back in November. It is time to pay close attention to price action in the near term. The U.S. stock market (represented in this article by the S&P 500) must re-establish new highs quickly or risk a trip to the 1800s (which increases risk of lower lows if that take place).

Using the chart below, we’re going to identify some important levels. Every trade we enter has to have an entry and exit plan. If we are going to establish a long position in the S&P 500 using the ETF, SPY, we need to know where to enter, when we’re wrong, and when to exit. The same is true for taking a short position. For us, we’ll us ETF, SH, to establish a short position on the S&P 500. As annotated on the chart, our game plan is to change from long to short with a daily close below 200.00. This is our if/then line. We are long above it, short below it. If price moves below 200.00, we would add to our short position with a close below 197.00. Keep in mind, that we will need to nimble with our short trade as we would be going against the upward price trend (as identified by the “360 green” channel). Each of the shaded areas and the lower green trend line would be logical places to reassess what price is doing and either add to our short position or change back to long. At each of those levels, we’ll analyze price and make adjustments as needed. With risk management, no game plan is static. We continually reassess our game plan to minimize loss and maximize gain. This game plan is not for everyone. We’re not saying going long or short is right for you. Cash is a position too. Some of the best trades are those that aren’t made.

Trade safe.

Click here to receive great research like this in your in-box: Free Email Notification Sign-up

Consumer Discretionary

Leader of the Pack [Weight of Evidence, Part 5…

November 20, 2014April 13, 2022

At 360 Investment Research, we like to dig deep into the market and take a look at what sectors are leading the US market upward. By analyzing sectors on a relative basis against the S&P 500, we can gain insight into what sectors are leading the charge. This, in turn, may provide clues on where we are in the market/economic cycle. The theoretical market/economic cycle is a model based on the work of Sam Stovall in his book, S&P’s Guide to Sector Rotation. The basic premise is that different sectors are stronger at different points in the economic cycle. StockCharts.com has done a great job elaborating on this rotational cycle. The chart below is courtesy of StockCharts.com. It does a good job of visualizing these relationships and the order in which each sector should outperform in the context of the overall market. Moving from left to right, we see that Cyclicals (or Consumer Discretionary) and Technology lead the market out of bottoms. Industrials, Basic Materials, and Energy lead during a Bull Market. And Staples, Healthcare, Utilities, and Finance are the safe havens during Bear Markets. It’s not as clear cut as what I just wrote or what is visualized below, but it is a really great guide to the likely relative performance characteristics of each sector as the market progresses.

Researching approximately how each sector is performing can be a good exercise in determining where we might be in the overall market cycle. Obviously, if we’re in a healthy Bull Market, we want to see Bull Market leaders like Technology, Industrials, Materials and Energy outperforming (or leading) the overall market. Conversely, we would be concerned about the overall prospects of the market and economy if we see that big money is moving into defensive sectors like Staples, Healthcare, and Utilities. So let’s dig in and see what sectors are leading the overall market.

One of the best ways of observing which sectors are doing the best and which sectors are lagging is through the use of Relative Rotation Graphs (RRG) [1]. RRG charts show us the relative strength and momentum for a group of stocks or ETFs. These stocks or ETFs are compared against a benchmark. In our case, we’re going to compare the aforementioned sectors using the overall market (the S&P 500) as our benchmark. That is to say, the performance of each of these sectors will be compared against the performance of the S&P 500. If a sector is outperforming the market, they are said to be the leaders. If a sector is underperforming the market, they are the laggards. On the RRG chart below, the following ETFs are being used as proxies for each sector:

XLY (Cyclicals or Consumer Discretionary)
XLK (Technology)
XLI (Industrials)
XLB (Materials)
XLE (Energy)
XLP (Staples)
XLV (Health Care)
XLU (Utilities)
XLF (Financials)

Of the ETFs above, those with strong relative strength and momentum in comparison to the S&P 500 appear in the green Leading quadrant. Those with relative momentum fading move into the yellow Weakening quadrant. If relative strength then fades, they move into the red Lagging quadrant. And when momentum starts to pick up again, they shift into the blue Improving quadrant. In the RRG below, the long tails represent the movement of each sector over the past 20 weeks in comparison to the S&P 500. So what do we see? We see that XLV, XLU, XLP, and XLF have moved from positions of weakness and laggards to positions of leadership. Health Care (XLV), Utilities (XLU), Staples (XLP), and Financials (XLF) – defensive sectors – are leading this market. On the other hand, Technology (XLK) is weakening while Energy (XLE), Materials (XLB), and Cyclicals (XLY) are lagging. Bluntly, defensive stocks are leading and those who we want to lead a Bull Market are lagging. Money is flowing into defensive sectors. This is not what a healthy and powerful Bull Market looks like. Does it mean that this the top of the Bull Market? No one knows that. But, enough money is flowing into defensive sectors that investors like you and me should take notice.

[1] Note: The terms “Relative Rotation Graph” and “RRG” are registered trademarks of RRG Research.

Equity

The Curious Case of Elevated Volatility [Weight of Evidence,…

November 13, 2014April 13, 2022

“Fear tends to manifest itself much quicker than greed, so volatile markets tend to be on the downside. In up markets, volatility tends to gradually decline.” ~ Philip Roth

The CBOE Volatility Index is often referred to as the FEAR Index. This forward looking index is calculated from option activity, and reflects the market’s expectation of 30-day volatility. We like to look for divergences between the VIX and the US Market. We look for odd behavior. Normally, as would be expected, when fear/volatility increase, stocks decrease in price – and vice versa. However, sometimes a change in market sentiment from greed to fear (and the opposite also applies) can tip its hand. When we see fear/volatility increase along with market prices, we take notice. This is odd behavior and could be a warning sign that market participants (big money managers) are changing their mood.

Below are two charts: one from 2007 and one from today (2014). Both show that while the US Market (in this case, the S&P 500) is making higher highs, the VIX is making higher lows. They are moving together. Odd behavior. In 2007, this was a clue that a change in trend was approaching. And as you can see, the same is taking place now. Does it mean that this is the top of the market for the foreseeable future? No. But, it means we’re going to keep close eye on the price action from here until this odd behavior resolves itself. Those who are looking for the bull market to continue want to see lower lows in the VIX and the market to hold onto these highs.

Stay curious, investor. Check back again tomorrow as we’ll have more to add. And if you find this information useful, make sure to share the wealth using the share buttons at the bottom of this article.

Emerging Markets

Russia (RSX) Reaches Downside Targets

October 20, 2014April 13, 2022

Back on June 23rd, we identified the opportunity to short Russian equities with very little risk and very good reward. It paid off. Russian equities (using RSX as our proxy in our post) sold off after hitting (and failing to breakout from) a downward trend line that dates back to 2007. This downward trend line, along with a common Fibonacci retracement ratio, provided stiff resistance and a well defined risk/reward scenario. -19.6% later, we’ve reached our 2nd target of 21.00. Accordingly, we’ve closed our short trade and will re-evaluate Russian equities for further weakness. We would consider going long Russia here, but the breakdown in oil has us investigating this thesis more thoroughly. We also could consider re-entering a short position in Russia if there is more downside follow through past 21.00. Quite frankly, if that latter scenario unfolds, there may be bigger sell-offs happening across many major financial markets.

This trade is specifically why 360 Investment Research uses technical analysis. We can identify robust risk/reward opportunities in any market across the entire investment universe.