5 ETFs on the Verge of Breakouts
This week's "mini rally" has been good for more than just boosting investor sentiment. Recent broader market gains have been constructive for myriad sector ETFs. An array of funds that recently had charts that looked mediocre at best now look pretty good. Some are even showing signs of breakouts with the potential to attack recent or even 52-week highs.
Investors need to be cognizant of the fact that market volatility remains high and sentiment can shift on a dime in this environment. However, the good news for the bulls is that critical sectors such as technology, the largest sector weight in the S&P 500, are perking up. Even some bank ETFs are showing promise.
Speaking of showing promise, that is exactly what these funds are doing right now.
WisdomTree Equity Income Fund (NYSE: DHS) On its own, a 30-day SEC yield of 3.88 percent makes the WisdomTree Equity Income Fund appealing. Then there is this statistic: In the past 90 days, while the S&P 500 is slightly lower, DHS has surged 5.6 percent. Beyond that, conservative investors can really embrace this ETF as health care, consumer staples, telecommunications and utilities names combine for over 63 percent of the fund's weight.
Here is the near-term technical outlook: DHS must notch some closes above $47 to induce fresh buying and a confirm a breakout. If the ETF can do that it has a clear runway back to $50, a price DHS has not seen in over four years.
iShares Dow Jones US Oil Equipment Index Fund (NYSE: IEZ) The iShares Dow Jones US Oil Equipment Index Fund faces some horizontal (and psychological) resistance at $50. That is the first hurdle. The second hurdle is the 200-day moving average around $51.40. Assuming IEZ can deal with both of those tasks, the ETF is then set up perfectly to race to $55-$57.
IEZ's biggest problem is not technical. It is weakening fundamentals among oil services stocks. Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL) and friends must give the market reason to believe demand is stabilizing, if not improving, before investors embrace these high-beta stocks and ETFs in earnest.
Consumer Discretionary Select Sector SPDR (NYSE: XLY) The Consumer Discretionary Select Sector SPDR is the epitome of an ETF that deserves a lot of credit. Recent U.S. economic data has been concerning and that is to put things mildly. A vast majority of consumers believe the recession will last another three years.
Through all that doom and gloom, XLY is not just surviving, it is thriving. It looks like the ETF broke out today and is ready to attack its May high just over $46.
iShares Dow Jones US Telecom Index Fund (NYSE: IYZ) The forecast is easy to interpret for this low-beta sector fund. IYZ needs to keep closing above $23. From there it can address resistance at $23.50. Should that area fall on high volume and investors keep running to conservative sectors, IYZ will likely finish 2012 on a high note.
First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG) The First Trust ISE-Revere Natural Gas Index Fund continues to tempt, technically speaking, and the chart confirms as much. Those looking for confirmation that natural gas equities are finally ready to bounce to the upside need only look at the United States Natural Gas Fund (NYSE: UNG), another ETF that is showing signs of a breakout.
If significant inventory reductions or a fundamental catalyst come to pass, then FCG and UNG could deliver impressive near-term gains.
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