Active traders spend countless hours scouring the markets for leading indicators that could point to a major shift in the momentum of a certain sector or even the general market. One common technique is to analyze niche exchange-traded funds (ETFs) and then extrapolate the findings across different segments in hopes of identifying underlying trends. In this article, we'll take a look at the charts of ETFs that comprise global leaders across the equities markets and try to determine how traders will be looking to position themselves over the weeks or months ahead.
Traders who are interested in gauging the trend across the global financial markets generally turn to ETFs such as the Vanguard Total World Stock ETF. Specifically, with total net assets of nearly $17 billion and more than 8,150 holdings, the VT ETF offers traders one of the most cost-effective and convenient ways for tracking performance of both well-established and still-developing markets. Taking a look at the chart below, you can see that the price has recently moved below the support of an ascending channel pattern. The breakdown, shown by the blue circle, has also triggered a bearish crossover between the 50-day and 200-day moving averages, known by followers of technical analysis as the death cross. This long-term sell sign, highlighted by the blue arrow, is often regarded as the beginning of a long-term downtrend, and most bulls will likely remain on the sidelines until indicators start to show clear signs of a reversal.
Active traders seeking to gain exposure to the world's largest companies often look to investments such as the iShares Global 100 ETF. This fund is currently of interest to traders because it has broken below two major levels of support. As you can see in the chart, the close below the trendline and subsequent break below the 200-day moving average has acted as a catalyst to a sharp sell-off. What is the most interesting about this chart to traders is how the price failed move back above the new-found resistance, shown by the blue arrow, which for many will be used as confirmation that the bulls are losing conviction in the uptrend. Since these levels have proven to be barriers to a move higher, traders will likely watch for the recent bounce to start to lose momentum and for the price to head back toward the October low of $44.18.
Another ETF that could be looked to by traders looking for clues about future market direction is the Innovator IBD ETF Leaders ETF. In case you aren't familiar, this fund holds positions in five other leading ETFs. Taking a look at the chart, you can see that this portfolio has recently fallen below the support of a triangle pattern and has started its move lower. Based on the pattern, active traders will likely look to set target prices around the October lows near $22.
The Bottom Line
With the rise in popularity of ETFs, active traders now have the ability to track the performance of nearly any niche. It is not uncommon to see traders use signs from various funds in combination with each other as leading indicators for how the broader markets will likely perform. Based on the charts discussed above, followers of technical analysis will likely be looking for the global markets to move lower heading into 2019.
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not hold a position in any of the assets mentioned.