Risky to Go Long iShares Select Dividend ETF

 | Oct 12, 2016 | 11:50 AM EDT
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DVY

I don't get too excited about the Fed minutes release. While we'll still have traders running to make snap decisions right after those minutes come out, we aren't likely to see the same whipsaws and big volatility that we see after FOMC meetings. I expect whatever trend we see into the late afternoon, we'll see carry over into the morning. I would anticipate the most interest-rate sensitive names have already adjusted for whatever interest rate chatter will be drawn from today's release. Utilities and REITs have already retreated 10% off recent highs. REITs have struggled more than utilities here, but I anticipate both will walk lock-step into the end of the year.

Now it is time to look toward the second-tier names that were chased for yield. I'm referring to the dino-dustrials (industrial dinosaurs). The group can best be watched via the iShares Select Dividend ETF (DVY) . I'll sometimes refer to these names as fringe large-cap value. They aren't deep value, examples of which won't feel quite the same ill effects of rising interest rates as something like DVY. You look through the top 10 and you'll find some utilities, but we'll find a well-diversified group in terms of sector exposure.

DVY is off recent highs, but we're looking at a drop of less than 4% from those highs. The technical picture here is similar to what we would see if we examined REITs or utilities. The current trading channel could very well be a bullish flag, but if you are buying a breakout, you should be on your hands until $87 is broken. If you are buying this channel, then your stop better be tight as downside looks to outweigh upside in terms of a nominal move. Some may point to the potential bullish crossover in the full stochastics as a buy trigger. After all, it worked out fantastically well to start 2016, but the landscape is different here. We don't have any bullish divergences on the chart. Furthermore, momentum and volume are still dropping rather than bottoming or turning higher. The longer-term trend might have the only similar setup, but that makes sense given the only possible bullish setup is short-term trend. DVY has also lost both the five-week and 13-week simple moving averages. The Fed minutes have the potential to launch this ETF into the $79-to-$81 range. That would be the first area I would even consider a long-side trade but, for the moment, I view the risk-reward skewed favorably toward bears.

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