Market Vectors Gold Miners ETF
The first asset class we'll look at is gold, an asset that's been on fire in the last several years, as the global financial meltdown of 2008 sent investors scurrying to find some kind of safety asset. The Fed's decision to undertake Operation Twist back in September sapped a lot of the demand for the yellow metal, and since then, investors have been wondering if it still makes sense to be a goldbug. So, does it?
It sure does. Gold prices hit horizontal support this week after getting woefully oversold, but to me the best trading opportunity isn't in gold; it's in gold miners. Enter the Market Vectors Gold Miners ETF (GDX), an exchange-traded fund that tracks a portfolio of gold mining stocks. Barrick Gold (ABX) and Newmont Mining (NEM) are a couple of the fund's biggest holdings.
>>6 Stocks to Play for Lower Gold Prices
GDX made a v-bottom last week, and yesterday's massive 4.5% rally in the index broke it out above short-term resistance at $44. RSI
, a measure of momentum, broke its 3-month downtrend a couple of days earlier, signaling extra evidence for a bullish shift in price action.
I think now's a good time to buy the oversold bounce in GDX -- especially as Operation Twist winds down in June. If you decide to buy, keep a protective stop no lower than $40 support.
As of the most recently reported quarter, GDX was one of the top holdings at David Einhorn's Greenlight Capital
and also shows up in Tiger Management's Holdings
iShares Barclays 20+ Year Treasury Bond Fund
Speaking of Operation Twist, that brings us to the unfortunately-named iShares Barclays 20+ Year Treasury Bond Fund (TLT)
, an ETF that gives investors easy exposure to treasuries on the longer-end of the curve. TLT has been an extremely popular fund as treasury prices skyrocketed in the last few years -- and last week's breakout is bringing investors back out of the woodwork to buy more. But I wouldn't recommend joining in.
At first glance, TLT looks pretty strong from a technical standpoint: it broke out above $121.50 resistance last week, and it's got plenty of support levels nearby to reduce risk. But TLT has some structural challenges to it right now. Keep in mind that as TLT moves higher, treasury yields are moving lower -- and at this point, yields are already scraping the bottom.
Similarly, the Fed's Operation Twist buying has accounted for the vast majority of the dollar volume flowing into Treasuries in the last six months; when that demand slows next month, yields could start floating higher again.
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Overbought RSI and a dying uptrend on the 50-day moving average
are a couple of early cues for those structural factors challenging treasury prices.
PowerShares DB US Dollar Index Bullish Fund
Instead of TLT, think about the PowerShares DB US Dollar Index Bullish Fund (UUP)
. The fund gives you exposure to the U.S. dollar, an asset that benefits when investors are piling into treasuries and when other currencies are getting shellacked (a la the eurozone), but it doesn't share the same structural challenges that treasuries have right now. In fact, it could rally more when the Fed stops inflating the greenback to buy t-bonds.
More important, UUP is edging into a technical breakout right now. UUP moved up to test resistance at $22.80 in yesterday's session, but failed to break above that price ceiling that was set back in January. Even though RSI is threatening a similar oversold swing to the one in TLT, a price breakout would outrank any red flags from it. A breakout means that buyers are in control of prices for UUP -- it's the buy signal for a high probability trade.
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Closest support at $22.40 gives traders limited risk in buying this ETF. It's the price that I'm recommend using for a protective stop
iShares Cohen & Steers Realty Majors
One asset class that investors shouldn't ignore right now is real estate. After all, REITs are easy to invest in, they have very low correlations with other equity investments, and they pay out dividend income.
One stellar way to get exposure to a bunch of REITs is through the iShares Cohen & Steers Realty Majors ETF (ICF)
, which has big positions in names such as Simon Property Group (SPG)
and Public Storage (PSA)
>>6 Housing Stocks With Curbside Appeal
Right now, ICF is looking toppy. The ETF has formed the left shoulder and head of a head and shoulders top, a pattern that indicates exhaustion among buyers -- that's an outlook that makes sense giving what we saw in bonds. If TLT does fall and interest rates rise, dividend-paying REITs are going to suddenly look a whole lot less attractive. A breakdown below the neckline in ICF provides a good opportunity to short the fund -- or at least reduce your REIT exposure for the next few months.
If you decide to go short, I'd recommend putting your stop in just above the 50-day moving average.