After a strong performance by the major indexes over the past week, we may finally be receiving some clarity as to the direction the markets moving forward.
The NASDAQ has rallied strongly of late and PowerShares QQQ (QQQ) is close to a new high. The ETF closed at $91 on Tuesday, only $0.06 away from its peak in March. Adjusted for dividends, however, new high has already been reached.
iShares Russell 2000 (IWM)
Last week we focused on the Russell 2000 because it was the most bearish of the indexes and was trading below its 200-day moving average. As of Tuesday’s close, IWM is not only above its 200-day moving average, but also above its 50-day moving average. The Russell 2000 only started outperforming the S&P 500 Index over the past couple of days, but if the market sentiment continues to improve, small caps outperformance should continue.
In addition to the recent performance of the Russell 2000, both iShares Dow Jones Transportation Index (IYT) and SPDR S&P 500 (SPY), climbed to new all-time highs in the past week.
SPDR Energy (XLE)
Energy did not break higher with the market on Tuesday, but as the chart of U.S. Oil (USO) shows, oil prices rallied. The strongest performers of late have been small caps and some of the beaten down sectors such as biotechnology. Assuming bullish sentiment is increasing, the rally should broaden from the rebounding sectors to the rest of the market. For the moment though, energy, materials and utilities, the three best performing S&P 500 sectors over the past three months, are lagging.
SPDR Technology (XLK)
Technology has been leading over the past several trading days and there’s no reason why the sector cannot continue to propel the market higher. One major factor in XLK’s rise has been Apple (AAPL), which is the largest holding in the fund at more than 15 percent of assets.
Market Vectors India Small Cap (SCIF)
India ETFs finally pulled back after an incredible run. If you heard that SCIF fell 7.41 percent on Tuesday you might expect to see a chart with a big down line, but that is not the case as SCIF rallied roughly 30 percent in the past three weeks. The heavy selling is likely the result of short-term traders taking profits. A further pull back is possible, creating entry points for investors who like the India’s long-term prospects.
SPDR Gold Shares (GLD)
While the outlook for the broader indexes is turning bullish, the outlook for gold is turning bearish. As can be seen in the chart below, GLD, like the broader indexes, was trading in a very tight trading range. However, where the stock indexes have broken out to the upside, gold has broken to the downside.
There is not a lot of technical support for gold and a move to the previous lows in 2013 is not out of the question. A loss of a little more than 5 percent would take gold to its low of the past year, and given it dropped more than 2 percent on Tuesday, it may not take long to test those levels.
iShares MSCI Emerging Markets (EEM)
If you follow emerging markets, below is a chart worth watching closely over the next weeks. EEM climbed close to its high for the past year this past Thursday and then turned lower on Friday and Tuesday. It reached $43.22, slightly below its $43.26 peak in October 2013 and its $43.27 high in early May 2013. This is worth watching because failure to breach this level would bearish over the short-term.
