ETF Trends, Patterns and Setups – Reopening ETFs Resume the Lead, Healthcare Stays Strong, GLD Breaks Out

The bull market in stocks remains intact as we start 2021. The S&P 500 SPDR and Nasdaq 100 ETF finished the year at new closing highs, while the Russell 2000 ETF finished less than 2% from its December 23rd closing high, which was a 52-week high. For the year, IWM was up 18.34%, QQQ rose 47.57% and SPY gained 16.16% (sans dividends). Note the Silver ETF kept pace with QQQ in 2020.

We have an interesting mix of overbought ETFs and ETFs that are consolidating. ETFs that are overbought are not outright bearish, but they do not have tradable setups. The overbought ETFs are the current leaders because they are the ones with the biggest gains and the ones trading at 52-week highs. ETFs that are consolidating within uptrends have tradable setups, such as bullish flags, pennants

The broad market environment remains bullish, but the picture is turning mixed as fewer stocks follow the major indexes higher. The S&P 500 SPDR, Nasdaq 100 ETF and Russell 2000 ETF moved to new highs this week and are positive the last 16 trading days, but the S&P 500 Equal-weight ETF did not hit a new high this week is down around 1% the last 16 days. The equal-weight S&P 500 represents performance for the “average” stock in the S&P 500. I am also seeing some underlying weakness in short-term breadth for the S&P 500 and the technology sector.

The bulls remain in the driver’s seat when it comes to stocks. Strength within the stock market is broad with the S&P 500, Nasdaq 100 and Russell 2000 recording new highs here in December. There is also broad strength within the stock-related ETFs with dozens of new highs. Tech-related ETFs reasserted themselves as the true leaders with breakouts in late November and new highs throughout December. Keep in mind that these ETFs also recorded new highs

There is a new ETF in town that promises big potential. The Invesco Next Generation Nasdaq 100 ETF (QQQJ) is based on an index with the same name. As the Invesco web site explains, 90% of its total assets will come from the underlying index and this index is based on the 101st to 200th largest stocks in the Nasdaq. This makes it a small and mid cap version of the Nasdaq 100. The ETF is

Today’s video starts with the long-term picture for the big three: SPY, QQQ and IWM. All three are holding their breakouts with IWM extending the furthest and QQQ perking up this past week. We continue to see strong participation in the breadth indicators. Yield spreads remain at normal levels with the junk spreads narrowing even more in December. We will then turn to the new ETF ranking table to show how it can be sorted and viewed. Attention then turns to the ETF ChartBook. The Home Construction ETF (ITB) finally

As with many things in life, we are usually better off focusing on the present when it comes to stock market analysis. Focus on what IS happening, as opposed to what MIGHT happen. This is a game of odds and the odds favor a continuation of current conditions, as opposed to a change. The trend, especially an uptrend, is more likely to continue than reverse. There will be plenty of things concerns along the way, but trend is the single most important factor and the trends are clearly up for the major index ETFs.

The technology-related ETFs are coming back to life with the Technology SPDR (XLK) and Nasdaq 100 ETF (QQQ) moving to new highs this week. These two are just playing a little catchup because several other tech-related ETFs already hit new highs in late November (SOXX, IGV, SKYY, HACK, FDN, IPAY, FINX). Energy and banks are attracting a lot of attention still, but these tech-related ETFs are the ones trading at new highs.

There are some signs of excess, but the weight of the evidence remains bullish. Today’s video will shows some excesses and some performance discrepancies since November 9th. Despite these concerns, the breadth models and indicators are bullish. In fact, participation is strong overall and SPY is holding its breakout. Stock alternatives, like TLT and GLD, remain in downtrends, as is the Dollar. We are seeing medium-term breakouts

The major index ETFs notched fresh new highs this week with the Russell 2000 ETF leading the way. Despite new highs, the market advance is quite uneven. As of 10AM Friday morning, IWM was up around 1.5% for the week, while SPY was down 1.2% and QQQ was down around 1.6%. It is not often that we see such seesaw action. As we will see in detail below, there is also a significant performance discrepancy since the open on November 9th (vaccine day).

Most stock-related ETFs are in uptrends of some sort and many are quite extended after big runs since late October (26 days). ETFs hitting new highs this month are the true leaders (SPY, QQQ, IWM, XME, XRT, SKYY). There is also a group with market-leading gains the last 27 days (since late October), but they are not “true” leaders. The energy-related ETFs (XES, FCG, XOP) are up more than 40%, the Airline (JETS)

ETF ChartBook ETF Rankings The weight of the evidence is clearly bullish and we are seeing some fresh breakouts this

Outside of sentiment and some extremes in price and breadth, one would be hard pressed to find negatives in the stock market right now. Stocks and risk assets are rising, while Treasury bonds and safe-havens are out of favor. Since November, SPY and QQQ are up more than 12% and IWM is up more than 20%. Oil and copper are up double digits. Clearly, the reopening trade has center stage.

There are lots of long-term uptrends in the equity-related ETFs, but there are not many short-term bullish setups. Most of the setups materialized in early November as stocks declined in October and RSI moved into the oversold zone for dozens of ETFs. With the November surge, RSI moved above 70 within the last five days for more than half of the equity-related ETFs in the Core List.

Today’s report is a bit of a hodge-podge. There are signs of extreme in some breadth indicators, but signs of extreme are not very good when it comes to timing because indicators can remain near extremes for a few months. I will then turn to the new breadth signal in the Energy SPDR (XLE) and the breakout on the chart. Even though Energy and Banks are leading the last three months, let’s not forget about the tech-related ETFs, which are breaking out to new highs and truly leading.

Today’s video starts with the current weight of the evidence, which is bullish. We then turn to some signs of excess, which could be just noise to keep us on our toes. Most importantly, SPY is holding its triangle breakout and QQQ is on the verge of a breakout. The technicals remain bullish until they aren’t (proven otherwise). Outside of the technicals, yield spreads continue to narrow and the Fed balance sheet continues to expand. We will also look at a weak Dollar, the downtrend in Gold and the resistance challenge in TLT, as well as the charts in the ETF ChartBook.