ETF Outlook for Week of January 27, 2014

ETF Outlook for Week of January 27, 2014

SPDR S&P 500 ETF (NYSE: SPY)

The S&P 500 fell by 2.1 percent on Friday, its second consecutive day of heavy volume selling. The weekly loss of 2.6 percent pushed the index and SPY below the 50-day moving average for the first time since October. The last four times SPY closed below its 50-day moving average the ETF continued to trade below the indicator for less than two weeks on average. The price support level to watch on the ETF is $177, followed by $173.50. If the selling continues and SPY tests the latter it would result in a loss of 6.2 percent from the all-time high set earlier this month. In a big picture view the pullback does not sound like a lot, but while the ETF is falling it is difficult to sit back and watch.

United States Natural Gas ETF (NYSE: UNG)

The futures contract for the front month delivery for natural gas rallied 10 percent on Friday to the highest level since June 2010. For the week the commodity is up 20 percent as the bitter cold continues to hit a large portion of the country. UNG finished the week higher by 17.9 percent and at the best level in two years. The breakout to a new high was significant because it sent the ETF through a resistance level that has been a ceiling several times in the past. Some analysts are calling the rally a short-term situation as temperatures will begin to rise again in the coming weeks and the supply of natural gas will increase with the expansion of shale drilling. From a technical perspective, as long as UNG can hold above $24 the ETF is in the midst of a breakout pattern.

iShares MSCI Emerging Markets ETF (NYSE: EEM)

The anticipation of more Fed tapering this week combined with China manufacturing numbers showing contraction were only two of the catalysts that drove down the emerging markets again last week. There are ancillary problems that exist for the asset class. Turkey is dealing with political instability and saw its currency, the Lira, hit a new low for the tenth consecutive day. The Argentine Peso nosedived to a new 12-year low. And the commodity-producing emerging markets are falling, as a China slowdown would directly hurt their economy. EEM fell by 3.9 percent on the week and is trading at the lowest level since late August. The ETF needs to hold important support at the $36 level or the bears will take total control of the action.

iPath S&P 500 VIX Short-term Futures ETN (NYSE: VXX)

The CBOE Volatility Index (VIX) surged on Friday as the fear increased and complacency diminished in the market. The old saying of when the VIX is low it is time to go and when the VIX is high, it is time to buy often rings true. The VIX is now closing in on a level that in the past has been a buying opportunity for stocks. This week it will be important to watch the index for signs of a bottom. VXX rose by 9 percent on Friday, but over the last 12 months the ETN has lost 51% as the market has slowly moved higher and fear among investors was minimal. As the market sells off it is typical for the VIX to move in the opposite direction and for VXX to act as a hedge. That being said, over the long-term holding VXX has not proven to be a successful investment and the ETN should be left to the aggressive traders that are okay with big gains/losses on a daily basis.