3 Attractive ETF Chart Set-Ups For The Week Ahead

David Dierking

The S&P 500's decline of nearly 3% last week indicates that investors are becoming more cautious as the news of spiking COVID cases grows. The market isn't turning decisively bearish yet, however, since defensive issues, including consumer staples and utilities, underperformed the broader market. Still, the charts that look most attractive this week represent more defensive positioning.

I run a series of screens on ChartMill over the weekend to identify some of the sectors, themes and strategies that look poised to outperform in the coming weeks.

This week, I expect the markets will favor more defensive investing and those sectors that could benefit from a new COVID outbreak. A big question is how the Fed might step in to offer some new stimulus optimism.

Here are three of the charts identified by my ChartMill screens as potential outperformers.

iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

Corporate bonds, viewed just a few months ago as vulnerable to default risk, have regained all of their bear market losses and are on the precipice of breaking to new all-time highs. LQD has been bubbling at March highs for a couple of weeks now and any sense of investors continuing their pivot away from equities could lead to a breakout.

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The big catalyst is the Fed. It continues to add millions of dollars of corporate bonds - investment and non-investment grade of all maturities - to its balance and will likely keep doing so for the foreseeable future. This buying pressure creates a floor under this group that probably eliminates the risk of significant downside here.

VanEck Vectors Gold Miners ETF (GDX)

Gold is starting to become a more popular trade and the chart confirms it. Gold is threatening to finally break through the $1800 mark, a level which could be the last real resistance for a quick move towards $2000.

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The wedge pattern suggests a breakout in one direction or another is coming for gold miners. The fundamental backdrop for precious metals suggests there's a much greater likelihood that this move is to the upside. GDX has traded around $35 for roughly a month, but I expect $40 is within reason over the next few months.

SPDR S&P Biotech ETF (XBI)

Biotech has the tailwind of the COVID vaccine push behind it, although a clear winner has yet to emerge. Biotech has seen a boost in June on some heavier volume, but has consolidated somewhat over the past week.

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The bounce off of the resistance-turned-support line around 99 was encouraging with the sector now in a firm uptrend. If the market turns south as the coronavirus spread, biotech could remain an outperformer even in a declining environment for equities.

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