Two ETFs To Watch This Week (KBE, XRT) [SPDR S&P Retail (ETF), SPDR KBW Bank (ETF)]

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May 7, 2014 12:50pm NYSE:KBE

sellbuyMorpheus Trading: Tuesday’s action was a definitely a negative for the current rally, with the S&P 500 and Nasdaq Composite both suffering a clear distribution day. We continue to see the battle between the relative strength of the S&P 500

and Dow vs the relative weakness of the Nasdaq and small cap Russell 2000.

Despite Tuesday’s distribution, the S&P 500 and Dow remain remain above the 50-day MA, which is still trending higher. However, the Nasdaq Composite and 100 are still below the 50-day MA, and the 50-day MA is trending lower. Tuesday’s close below the 200-day MA on the small cap Russell 2000 is more evidence for the bearish argument.

Financials continue to struggle, with banking stocks breaking down below the 200-day MA.

SPDR Banking ETF (NYSEARCA:KBE) has lost the 40-week moving average (which is like the 200-day MA on a daily chart), and the 10-week MA has turned down. A clear break of the 40-week MA in banks would put some pressure on the S&P 500:

$KBE breakdown

If $KBE is unable to find some traction, then a test of the prior swing low on the weekly chart is the next logical support level.

Retail stocks are also in trouble, with SPDR Retail ETF (NYSEARCA:XRT) breaking down below the 200-day moving average on a pick up in volume. The next logical support area is around $80 – $81.

$XRT 200ma breakdown

If $XRT continues to break down, then the 50-day MA will rollover and eventually break below the 200-day MA, which would confirm that a bearish trend reversal is in place.

Tomorrow’s big event will occur after the close, when $TSLA reports earnings. Since $TSLA is a monster leading stock, its reaction to earnings could have a big impact on how the stock market (especially the NASDAQ) closes out the week.

This article is brought to you courtesy of Morpheus Trading, LLC.

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