Stocks to rally? Three ETFs won't make it

Published Fri, May 29 20158:43 AM EDTUpdated Fri, May 29 20159:21 AM EDT

Even though U.S. stocks are trading at a record price, certain areas of the market may be ready to drop, according to fundamental and technical analysis. Eric Mustin, vice president of ETF trading solutions at WallachBeth Capital, identified three exchanged-traded funds that may be ripe for a decline based on fundamental analysis. CNBC Pro then asked Chris Verrone, head of technical analysis at Strategas Research, to give an opinion based on the charts. So with the fundamental and technical analysis covered, the ETFs below could be ready to dip. The ETF aims to track the performance of global coal transportation, equipment manufacturing and production. So far this year, KOL is down 13 percent, hitting a multiyear low during Thursday's trading session. Coal stocks have sold off in the past year, down more than 31 percent, as cheaper oil prices and higher standards for emissions have made coal a losing proposition. Mustin believes deteriorating fundamentals for companies such as Alpha Natural Resources and Peabody Energy , would be some of the main reasons for taking this ETF lower. Another reason, according to Mustin, is a 17 percent exposure to China, where economic growth has slowed this year. From a technical perspective, Verrone said his firm is "very negative on KOL, and does not believe a meaningful low is in yet." Consol Energy and Joy Global are some of the ETF's top holdings. Both stocks are down more than 14 percent this year. This recently launched exchange-traded fund aims to replicate the performance of the global airline industry. Airlines stocks are down nearly 10 percent in the past month on concerns over increased capacity, higher fuel costs and fierce competition. One of the main hurdles for airlines is higher oil prices, according to Mustin, who believes that aspect poses a major headwind. "With top weightings in names like Delta , Southwest , and American Airlines , investors looking for alternative ways to play a rebound in oil prices may want to watch for a big drop in JETS," he added. In the past month, shares of American Airlines are down 18 percent, while Southwest and Delta have seen their stock fall 12 and 9 percent, respectively. The charts show that JETS is off to a rocky start, and may have even entered oversold territory, said Verrone. But he's not ready to recommend buying yet. This ETF tracks the performance of the S & P utilities sector, which has sold off on the back of stretched valuations and a potential increase in interest rates later this year, reducing the appeal for the stocks' dividend yields. Following a 24 percent increase last year, XLU is trading in correction territory, down more than 10 percent from its high in January. "Any further move forward in rate-hike expectations will have an outsized impact on utilities and other yield plays like REITs (IYR), and Dividend ETFs (DVY)," said Mustin. Among the ETF's holdings, CenterPoint Energy , Entergy and Ameren are among the worst performers this year, down more than 12 percent. From a technical perspective, Verrone said that faded strength will continue leading XLU to lag the broader market. Read More 10 stocks hedge funds are buying

Jim Urquhart | Reuters

Even though U.S. stocks are trading at a record price, certain areas of the market may be ready to drop, according to fundamental and technical analysis.

Eric Mustin, vice president of ETF trading solutions at WallachBeth Capital, identified three exchanged-traded funds that may be ripe for a decline based on fundamental analysis.

CNBC Pro then asked Chris Verrone, head of technical analysis at Strategas Research, to give an opinion based on the charts.

So with the fundamental and technical analysis covered, the ETFs below could be ready to dip.