ETFs to Watch Now

07/30/2010 12:01 am EST

Focus: ETFS

Most traders I have been talking with are feeling the same thing: Something big is brewing for the equities market, but most do not want to get heavily involved until there is a clear direction. The broad market has been consolidating for almost three months, and it’s important to remember that the larger the consolidation, the bigger the move.

Also, the biggest and best moves come from failed patterns. So is the big head-and-shoulders pattern on the S&P 500 that everyone is yelling about (the sky is falling) really going to happen, or is this the big fakeout? Only time will tell, but no matter which way it goes, I will be sure to catch some of it.

Below are a few charts pointing out patterns and trends that could provide some opportunities in the coming days or weeks.

Financial Select Sector SPDR ETF (XLF)

Financials play a large role in moving the major indexes, so if this reverse head-and-shoulders pattern breaks out to the upside, then the indexes should rally and XLF could reach its measured move of $16.50.

Click to Enlarge

United States Oil Fund (USO)

Crude oil almost looked like it was going to break out and move higher this week, but sellers jumped in, sending it lower once again. The daily chart shows a large bearish pennant, which is known as a continuation pattern. So it looks as though we should see lower prices for oil ahead.

Click to Enlarge

SPDR Gold Trust (GLD)

Gold has been sliding lower for several weeks now, and it looks to be showing selling exhaustion. The fifth wave down with the volume spike indicates panic selling as investors cannot hold onto those positions any longer and exit. This is a bullish sign for gold. Also, we are seeing gold fall deep into a support level along with the 200-day moving average.

Click to Enlarge

In short, the equities market is in limbo until a clear trend is established. If the financial sector breaks out to the upside, then we should see a sizable rally. As for oil, it looks to be trading near the middle of its range, but is still in a downtrend overall. Gold is almost looking ready for a bounce, but I am waiting for more confirmation before jumping on the wagon.

By Chris Vermeulen of

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