Author: Patrick Clark
Covestor model: Market Neutral Growth
Disclosure: Long BIL
My weekly review of currencies, commodities, equity indexes and bond indexes shows several potential setups. The first and maybe most significant move is in the WisdomTree India Earnings Fund ETF (EPI). This ETF broke down below long term support on very high volume toward the end of January. EPI is luring me into a bearish intermediate term position. However, there is one concern that has kept me thus far from opening this position. I do not expect the Indian equity market to move lower in a vacuum. If the Indian market goes down significantly, I would expect confirmation in other emerging and developed equity markets around the world. But so far, markets in China, the US, and Europe all look technically bullish. So I will be looking for confirmation in some or all of these markets prior to pulling the trigger on this trade.
The list of indexes that directly contradict a sustained bearish move in the Indian market include virtually all commodity indexes tracked by ETFs. Over the past two years, we’ve seen a positive correlation between commodities and equity markets, but all commodity ETFs are currently trending up convincingly. I would like to see the commodity ETFs confirm EPI’s move by moving lower. The VIX is also contradicting the Indian equity market by hovering at multi-year low levels. This indicates very little concern in the US equity market about the outlook for equities. I would like to see the VIX move up above its 30 week moving average to indicate some fear in the US market. If I see some or all of these changes, I may open a bearish position in an EPI option or one of these correlated indexes.
The US dollar continues to look relatively bearish and the British Pound, the Euro and the Yen all look bullish. The SPDR Barclays Capital International Treasury Bond ETF (BWX) also looks quite bullish at the moment, but volume in that ETF is a bit low.
I recently put my cash to use by purchasing SPDR Barclays Capital 1-3 Month T-Bill ETF (BIL). This will be a long term holding and will provide a modest income stream to the portfolio.
I continue to maintain a bullish equity stance with a 30 percent long bias.
