Weekend Video – Digesting Gains. Narrowing Spreads, Backtesting Breadth, Bank ETFs Surge, Checking Commodity ETFs

Today’s report will focus on the breadth models, the breadth indicators for the S&P 500 and the long-term trend for the S&P 500. All are in bull mode right now and the broad market environment is bullish. I am also updating the backtest for the Trend Breadth Model and then adding a twist by trading QQQ with signals from the S&P 500 Trend Breadth Model.

Stocks remain strong overall with small-caps starting to outperform. Moreover, the small-cap ETFs worked off their short-term overbought conditions with bullish continuation patterns. Not to be totally left behind, SPY and QQQ also formed short-term bullish continuation patterns.

A changing of the guard may be in the works as small-caps, banks and utilities take the lead short-term. It all started on 25-Sept when the small-cap and banking ETFs surged from their lagging positions. Large-caps and large-cap techs participated in this surge, but many did not exceed their early September highs. IWM, KRE and XLU exceeded these highs and showed short-term leadership. Can it continue?

There is some curious activity in the intermarket arena. Namely, we are seeing continued weakness in Treasury bonds, relative strength in inflation-indexed bonds, weakness in the Dollar and strength in several commodity groups. I do not trade off intermarket relationships, but I do trade specific patterns and there are several commodity related ETFs with bullish breakouts working. Today’s commentary will focus on the DB commodity ETFs:

Today’s video starts with a review and outlook for the broader market. SPY formed a weekly spinning top to show indecision, but the falling wedge breakouts and follow through still dominate the charts. Small-caps are making a bid to outperform as a key ratio broke above its 200-day for the first time in two years. The rally continues to broaden with two more bullish breadth thrusts. Many ETFs are in the trend monitoring phase

Today we will start with small-caps, industrials and banks, because these three could be turning the corner. The IWM:SPY ratio moved above its 40-week SMA for the first time in 2 years, XLI is above the 200-day and KRE rose from the ashes the last four weeks. GLD may be parting ways with TLT and hooking up with SPY again. The breadth models remain bullish and there were two new signals in the short-term breadth models. The sector breadth model also remains firmly bullish with the newest signals coming

Some discrepancies are starting to build in the stock market. We witnessed a bullish breadth thrust last week because mid-caps and small-caps led from 24-Sept to 12-October. The Russell 2000 ETF exceeded its September high and produced a market leading gain during this time period.

Today’s video starts with a broad market overview by looking at the long-term trends in SPY and QQQ, as well as the recent resurgence in small-caps and mid-caps. We then turn to the bullish breadth models and point out the breadth thrusts seen this past week, as well as the expansion in new highs. Within the ETF chart book, the setups in SPY and QQQ started from a position of strength, but the market leading gains in IWM and MDY started from a position of weakness (ditto for KRE and KBE).

Stocks surged the last two weeks with a new group of leaders. Mid-caps, small-caps, banks and utilities led the charge. Large-caps and tech stocks lagged, but they still gained and remain bullish overall. The period from late May and early June was the last time we saw small-caps and banks take the lead. After a 15% advance in SPY and 25% surge in IWM, stocks rested from June 8th to July 9th with consolidations.

There appears to be a shift in market dynamics over the last two weeks. Small-caps outperformed large-caps, the Regional Banks outperformed Software, High-Yield Bonds outperformed Treasury Bonds and Utilities divorced themselves from Treasury bonds with a big surge.

Today’s post starts with trend-following and insights from a recent podcast featuring Nick Radge. I then analyze the benefits and drawbacks of using a market trend filter for a broad-based ETF strategy. And finally, I review the short-term breadth model, which was developed in response to the March-April surge.

Today’s video starts with a revisit to the ROC shock and the rationale behind the call for an extended corrective period, which would be quite normal. We will consider how long this correction might last, the path it might take and what would suggest that this is more than just a correction. The index and sector breadth models remain bullish overall, despite a few individual bearish signals. Utes and REITs

The long-term trend is up for the S&P 500 and Nasdaq 100, but questionable for the S&P SmallCap 600 and S&P MidCap 400. Small-caps and mid-caps are largely off my radar right now. Despite long-term uptrends and bullish evidence for large-caps, I remain in the correction camp for three reasons. First, SPY and QQQ became extremely extended in early September, as measured by

After correcting most of September, many stock-related ETFs caught a bid the last few days and we are seeing short-term breakouts in several areas. The Solar Energy ETF (TAN) is far an away the leader and the only ETF in the core list to hit a new high. Nevertheless, a handful are knocking on the new high door with pennant breakouts in the making (ITB).

Today’s video starts with the broad market charts as SPY formed a weekly spinning top and QQQ formed a piercing pattern. Even though the ROC Shock reversal earlier this month remains the dominant chart feature, falling wedges are taking shape and breakouts from these corrective patterns would be short-term bullish. The Nasdaq 100 is holding up the best and its short-term breadth indicators are oversold. In addition, we are also seeing relative strength in several tech-related ETFs

SPY and QQQ fell in September and are in short-term downtrends, which are considered corrections within a bigger uptrend. The S&P SmallCap 600 SPDR and S&P MidCap 400 SPDR also fell in September, but these declines do not look like mere corrections within a bigger uptrend. MDY, IJR and IWM fell well short of their January-February highs and broke their downward sloping 200-day SMAs. These three look like they are reversing the uptrends that began with the March blast off.

It has been a rough month for everything except the Dollar and Treasury bonds. The chart below shows month-to-date performance for nine ETFs. The Dollar Bullish ETF (UUP) and 20+ Yr Treasury Bond ETF (TLT) are the only gainers this month and both have been positive for the entire month. This is a big difference from August.