ETF Outlook For The Week Of April 7, 2014
iShares MSCI USA Momentum Factor ETF (NYSE: MTUM)
Momentum stocks were some of the hardest-hit areas of the market last week -- as high flying biotech, consumer discretionary and technology names fell precipitously. MTUM is designed to choose a subset of large and mid-cap stocks that have the highest excess returns over the last 6 and 12-month time frames.
Despite the weak opening on Monday morning, these market leaders have the opportunity to turn around their recent misfortunes if we see stabilization in the broader market. The relative strength for momentum stocks has now moved into oversold territory, and many traders are watching these names carefully for indications of a bounce that may signal a short-term opportunity.
Materials Select Sector SPDR Fund (NYSE: XLB)
Materials stocks are likely to be closely followed this week, as Alcoa Inc (NYSE: AA) unofficially kicks off earnings season on Tuesday with the release of their quarterly results. The materials sector has been a leader on the upside this year, primarily due to higher commodity prices for producers of base and industrial metals. Alcoa represents approximately 2.3 percent of the underlying holdings in XLB.
XLB hit a new all-time high last week, but has fallen prey to broader market weakness over the last two trading sessions. A positive earnings catalyst from Alcoa may be just what this sector needs to regain its footing and resume its upward march.
iShares MSCI Emerging Market Small Cap Index Fund (NYSE: EEMS)
Emerging markets have been relatively insulated from the recent volatility in the domestic markets, and small cap stocks in particular have been star performers. EEMS tracks 651 small cap stocks from developing markets such as Taiwan, South Korea and China.
Since the beginning of March, EEMS has gained 4.58 percent compared to a decline of 1.80 percent for the iShares Russell 2000 ETF (NYSE: IWM). ETF investors may be looking to diversify away from the high valuations associated with domestic small cap stocks into areas the offer a more attractive long-term growth opportunity. It remains to be seen if further selling will spill over into international markets, but for the moment they appear to be holding up quite well.
SPDR Gold Shares ETF (NYSE: GLD)
Gold bullion also faces a key test of resolve this week. as Wednesday brings the release of Federal Reserve meeting minutes. The price of the yellow metal has been falling relentlessly since the previous Fed notes indicated additional asset purchase tapering along with future policy tightening. A slight relief rally last week has propped up GLD near its 200 and 50-day moving averages.
GLD now sits at a crossroads of technical support, that needs to hold if gold prices want to resume their uptrend and avoid re-testing the 2013 lows. Safe haven buying and strong consumer demand from Asia have been the primary growth themes for this sector in 2014. However, gold still has some hurdles to climb to regain its positive momentum.
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