Here are 4 ETFs poised to move higher

The broad market trended lower
throughout the first half of Tuesday’s session,
but the broad market indices recouped their losses after testing support of
their respective lows of the prior day. Selling pressure during the final thirty
minutes caused the indices to close mixed and near unchanged levels. The S&P 500
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Industrials
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0.2%. The S&P 400 Midcap
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indices both closed 0.1% lower. Each of the major indices finished near the
middle of their intraday ranges, indicating indecision throughout yesterday’s
session.

Total volume in the NYSE declined by 1% yesterday, but
turnover in the Nasdaq was 5% higher than the previous day’s level. The losses
on higher volume caused the Nasdaq to register another “distribution day,” its
third within the past two weeks. Declining volume marginally exceeded advancing
volume in both exchanges, but most market internals were not very negative
overall.

Since the week began, the S&P 500 has been showing a great
amount of indecision and has only traded in a choppy, sideways range. Looking at
the daily chart, you will notice the index has formed “doji star” candlestick
patterns in each of the past three days. The “doji star” forms when an index or
stock closes at or near its opening price, but swings widely on both sides of
unchanged on an intraday basis. Such price action usually tells us that the
bulls and bears are playing tug-of-war throughout the session, but neither party
wins by the end of the day. When a “doji star” forms after a trend has been in
effect for a long period of time, it often precedes a trend reversal. However,
it can also indicate indecision that occurs when supply and demand are roughly
in equilibrium. Such has been the case for the past three days. We have circled
the “doji stars” on the daily candlestick chart of the S&P below:

Obviously, it is not a good idea to be aggressive on either
side of the market when major indices such as the S&P are chopping around in a
sideways range. Overtrading or trying to anticipate the market’s next direction
during such conditions results only in churning your account and making your
broker rich. Therefore, we recommend caution on both sides of the market right
now. If not already positioned mostly in cash, you can reduce your risk by
simultaneously being long the sectors with relative strength and short those
with relative weakness. When the market eventually determines its next
direction, you can quickly close your position on the opposite side of the
market if it loses its relative strength or weakness.

So which sectors and ETFs are showing the most relative
strength or weakness to the broad market right now? Gold
(
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remain long with a nice profit, is consolidating near its all-time high and is
among the strongest industry sectors right now. Even better is that its
direction has not been closely correlated to the direction of the broad market
indices. GLD probed below support of its daily uptrend line during a stop hunt
yesterday, but it closed the day back above support of its primary uptrend line.
An intraday probe below a key support level often precedes a rally to new highs,
which we expect within the next several days. The chart of GLD below illustrates
support of its daily uptrend line (regular subscribers should note that we have
also raised our stop on GLD as per the position summary below):

Another sector that remains strong is Oil Service
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which is also holding near its all-time high. The chart of OIH is indeed
bullish, but we recommend caution because it has become rather extended since
its strong uptrend began in the beginning of 2004. It is presently on its third
stage breakout after gaining 128% since the start of 2004, so it could easily
correct at any time. Be prepared to quickly close your position if you buy OIH
and it begins to correct. The same could be said of Utilities
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which has a similar chart pattern.

As for relative weakness, we still like and remain short IYR,
which is one of the two main ETFs that tracks REITs (Real Estate Index Trusts).
The Home Construction Index ($DJUSHB) is breaking down on its weekly chart and
REITs are now falling along with it.
(
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discussed yesterday, has also broken horizontal price support and is now
breaking down:

BBH has fallen considerably during the past five sessions and
could easily bounce from here, but we would view any retracement as a low-risk
opportunity to initiate a new short position if it bounces into resistance. As
for the broad-based indices such as
(
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(
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PowerRating), or[ QQQQ|QQQQ], you
may want to wait on the sidelines to see what happens next. It’s always more
profitable and less risky to simply follow the trend rather than anticipate the
direction of a new one. Remember to trade what you see,
not what you think!

Open ETF positions: