ETF Outlook For The Week Of May 19, 2014 (QQQ, EPI, XHB, XLF)
PowerShares QQQ ETF (NASDAQ: QQQ)
The ETF that tracks the NASDAQ 100 Index rallied in the final 90 minutes on Friday to end the week with a one percent gain. The sellers were looking to take control of the technology-heavy index heading into the weekend, but late buyers put that theory to rest.
The index continues to lag the S&P 500 and Dow as they both sit just below record highs. Since hitting a low in April, the ETF has been making higher lows and is in the midst of a new mini-uptrend. If that trend continues this week, it will be a positive sign for tech stocks and the entire market.
WisdomTree India Earnings ETF (NYSE: EPI)
After a landslide victory by the opposition party in the world’s largest election last week, all eyes will be on how India’s stocks react this week. EPI was up 10 percent last week and closed at a multi-year high, as the stock indices in India closed at all-time highs.
There was some fear that the Indian ETFs would suffer a “buy the rumor, sell the news” situation after the election results were officially confirmed. However, the Indian ETFs continued their rally into the weekend as the euphoria remained.
This week could be a different story as investors lock in big gains in a short time frame. At the very least, look for above-average volatility in the days ahead.
SPDR S&P Homebuilders ETF (NYSE: XHB)
The housing numbers on Friday were a welcome surprise to the beleaguered sector. Permits for new housing units were up eight percent and the number of homes that builders began constructing increased by 13 percent. The top line numbers were extremely impressive and it pushed the related stocks higher, however underneath the hood it showed that majority of the good news was related to apartment building, not single-family homes.
The news was enough to push XHB up 1.1 percent on Friday, however, the ETF was down 0.3 percent for the week. From a technical perspective, XHB is at an inflection point. It closed at an important support support level of $30.50 on Thursday after trading below it most of the day. The follow through Friday, combined with a bullish RSI reading, points to higher prices in the week ahead.
SPDR Financial ETF (NYSE: XLF)
As the indices sit near highs, one important sector has yet to join the rally. The financial and banking stocks have been lagging and XLF lost another 0.8 percent last week.
The news of large hedge funds lowering their exposure to the sector could have something to do with the underperformance after years of outperforming the overall market. At some point, the financials will have to join the rally for the major indices to continue hitting highs.
XLF has support in the $21.15 - $21.50 area, which it has been able to hold recently. A breach below support and it will generate some major red flags for the overall stock market.
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