ETF Midweek Peek

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK ( ETF Digest) -- Another holiday week brought volume so low it's difficult to speak of the bulls in the plural. Nevertheless, the bull(s) continued the run with only minor setbacks on any bad news such as a widespread credit downgrade across Europe and some poor earnings reports.

Wednesday's housing data was the red cape to encourage the charge. This morning's (Thursday) data was a mixed bag with slightly improved employment data, but housing starts took the wind out of the sails of yesterday's housing data. CPI was basically flat and the Philly Fed was irrelevant on the ridiculous reports and revisions.

Top Performers this week


Our #1 and #4 top performers this week are a second derivative of $100/bbl oil prices. $100/bbl oil (and price increases at the pump) brings renewed interest in alternative energy. Solar being the most viable and TAN being the primary ETF for the solar industry claimed the top spot on conviction volume. PBW just went along for the ride in the sector. Home construction continues this week on strength, especially encouraged by the positive data on Wednesday.

Materials were lifted mostly for the holdings in copper. The downward trend in India and China encouraged Emerging Markets positions for a potential reversal. Tech appears to have been in a short squeeze drifting sector higher and taking the tech weighted Q's with it.

New Highs



Semis, the most heavily shorted segment of tech, experienced a short squeeze and traders quickly piled in for the move. Oil services are the top benefactor of high oil prices, being the producers of crude.

 

Biotech tends to be were traders go when they're unsure of where else to find capital gains. The move up in tech has brought QQQ up to the 52-week high resistance. The two primary homebuilder ETFs, ITB and XHB jockey for position in slight technical differences.

New Lows

 

No surprises here that the "mega-bears" are at new lows on the recent rally. The story here is, which ones. Tech and Emerging Markets didn't just drift down in an inverse relationship to the longs. There was heavy selling in these two inverse positions indicating a short squeeze.

This, in turn, shoved down the bears in the tech heavy QQQ. Small caps are the favored "risk off" position and as the rally continued (despite absence of volume), traders moved into small caps sending the leveraged inverses to new lows.

Unusual Volume

 

Volume is all about conviction. Homebuilders have experience nearly triple usual (previously nearly non-existent) volume taking the homebuilders up into overbought conditions. Caution is advised and profit taking would be prudent.

TAN is still strong, but just about to enter overbought levels (70) and still hasn't reversed its long downward trend. The United Kingdom also saw higher volume. However, this was on a declining price which would indicate selling.

Overbought

 

Biotech is at extreme levels of overbought on the RSI. High volume ETFs rarely exceeds a relative strength over 85. IBB has extended through the 52-week high resistance but on significantly decreased volume. Both major homebuilder ETFs are in overbought territory and ITB is closely within reach of its 52-week high resistance.

Even with traders ringing the "risk off" bell, investors have continued to seek quality in preferred stock and dividend players, drifting these into overbought. Preferred and dividend buyers tend to be longer term holders so this could remain overbought for an extended period. The defensive sector of healthcare going into overbought indicates there's still some distrust in the recent rally. One of the most interesting new arrivals on the overbought table is XIV -- the inverse ETF of the Volatility Index (.VIX). This could signal a potential reversal ahead from low levels currently on the VIX.

Oversold

 

 

Nat Gas remains the "most unloved" in the universe, again hitting a new low. Traders have repeatedly been stung attempting bottom-fishing this ETF. It is now oversold but performance indicates a complete loss of interest.

What is interesting on this table is the VIX long positions being oversold. Relative volume on TVIX indicates volatility traders may have thrown in the towel. The VIX will be very important to keep an eye on in the week ahead. Lower prices and oversold conditions have already brought some traders into VIX positions as hedges in their portfolio.

Trending Up (sorted by performance)

 

 

China may have turned the corner trending up -- mostly as the result of more encouraging economic data out of the US. Three of our up trending positions are in Europe, despite a (long-expected) downgrade by S&P.

 

Easing of the relentless headlines have not been chumming the algos to yank the European ETFs around, but short positions on the Euro haven't seen much easing. Although we have these top 10 up trending positions this week, we are not seeing strong volume. This could possibly be due to trend exhaustion.

Trending Down (sorted by poorest performers)

 

 

 How many ways can you say Nat Gas stinks? The Fed's "Operation Twist" -- selling short term T-bills and buying long term Treasuries has had a significant impact on the short term T-bills. Although there has been a renewed interest in India, it still hasn't been enough to reverse the trend. The same is true for solar, but the conviction volume could reverse this trend if it recovers well after a pullback from overbought. The tech bears broke support on Monday with a short squeeze in semis.

In summary, we've had a pretty good run this week. However, when we look 'inside' the activity of the week, we see our better performers are coming against resistance and overbought conditions.

Volume is weak and unlikely push a major breakout. A choppy morning today is typical in front of options expiration as traders appear to be settling options accounts and awaiting data or event to give strong directional indication. Generally, we are seeing some signs of exhaustion in this rally.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.