Trader's Daily Notebook: 3 ETFs With Healthy Setups

 | Jul 17, 2017 | 7:00 AM EDT
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Stock quotes in this article:

QQQ

,

spy

,

IWM

,

xle

,

OIH

,

XBI

,

IBB

,

XLV

,

xly

Despite the solid gains in the equity markets last week, it's worth noting that most bullish action continues to favor momentum-oriented Nasdaq names, and not small-caps, which continue to falter every time they appear to catch a bid. For the week, the PowerShares QQQ ETF (QQQ) rose roughly 3.15%, while the SPDR S&P 500 ETF (SPY) climbed 1.4% and the iShares Russell 2000 ETF (IWM) scratched out a 0.9% gain. A bullish week all around, but notably less so for small-caps.

Daily IWM Chart

I'll keep a close eye on the IWM over the next few days as I'm still carrying a position from last week. For now, I'll stick with my view that the six-week consolidation above $139 is bullish, and as long it continues to close above the 50-day moving average (MA) I'll give buyers the benefit of the doubt. As far as a stop is concerned, I'll stick with the $140.50 stop mentioned in Friday's Trader's Daily Notebook (because this is still only a short-term position).

Daily S&P 500 Futures Volume

The E-Mini S&P 500 futures (Es) did close Friday's session at a new all-time high, but given the rally the contract's enjoyed over the past few sessions, I suspect a bit of choppy consolidation is in order. While any short-selling should be contained to day timeframe scalping, and preferably to beneath opening prints and volume-weighted average prices (VWAP), I'm not overly anxious to chase the Es or SPY as it probes new highs.

Since we spent a bit of time discussing the Energy Select Sector SPDR (XLE) and VanEck Vectors Oil Services ETF (OIH) on Friday, and I do still like these two ETFs long, let's take a quick peek at a few additional ETFs setting up nicely.

Daily XLV Chart

The two primary biotech ETFs, the SPDR S&P Biotech (XBI) and iShares Nasdaq Biotechnology (IBB) , remain in favorable position for buyers to auction prices to new swing highs. But another ETF that rarely gets the same attention, the Health Care Select Sector SPDR (XLV) , is set up equally bullish. The XLV also has the added benefit of being a bit easier to scalp on a short-term basis because of its higher daily trade volume.

A simple approach to trading the XLV would be to look for a way into the stock long (anywhere near current levels), with a close below either $79 or $79.50 acting as your protective stop.

Another ETF on my watch list is the Consumer Discretionary Select Sector SPDR Fund (XLY) . In this case, however, I'm looking to get short. To be clear, the XLY is not an especially volatile ETF. So for many traders, this idea won't provide sufficient profit potential to make it worth following. That said, if you're looking for weaker sectors to sell short in the event the overall market begins to stall, this might be right up your alley.

Daily XLY Chart

My baseline assumption is the break beneath the 50-day MA on June 20 was a violation of the intermediate timeframe trend, and the current bounce is simply alleviating the oversold nature of the stock. I'm interested in stalking a short as long it's closing beneath $90.85, or once it closes beneath its all short and intermediate timeframe MAs. In either situation, I'd likely use whatever the swing high turns out to be as my stop.

Moving on to Monday's Es auction, we'll treat 2453.75 as our day timeframe pivot and assume all trading above that figure keeps buyers in an aggressive state of mind. While my current expectation is for responsive sellers to play a more active role on any test above Friday's 2461.25 intraday high, I don't believe it would be surprising to find responsive buyers camped out against the mid-2450s.

5min S&P 500 Futures Volume Profile

A failed bounce from 2453.75 has the potential to decline toward 2445.75 to 2447, but that's as far as I'd expect it to fall during the regular session. If you're stalking a day timeframe buying opportunity, anything toward 2445.75 to 2447 would be my primary target.

Any trading or volume profile-related questions can be posted in the comments section below, emailed to me at parkcityyeti@gmail.com or posted to my twitter feed @ByrneRWS

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