Systematic Strategies and Next Level Technical Analysis

Not So Fast There, Cowboy – The Reflation/Value Trade Gets Cold Feet

Small-caps and banks went from potential leaders to potential failures over the past week. Basically, the markets got cold feet on the reflation/value trade and bailed the last two days. I do not know if this is just pre-election jitters, but there are a lot of BIG unknowns out there right now. These include the uneven rebound in stocks, election, covid, lockdowns, QE and fiscal stimulus, to name a few. Right now the election is the elephant in the room and traders may be putting off new bets until this event passes.

Now let’s look at some of the failures that are brewing in small-caps, Industrials, Finance and banks.

Equal-weights Fail at Resistance

Even though a bullish Ascending Triangle is still possible, the price action in the S&P 500 EW ETF (RSP) is not inspiring as it failed at resistance with a gap down. RSI gapped down on Monday and closed off its low. The ETF opened flat on Tuesday and closed near its low. Thus, the gap is short-term bearish and considered a breakaway gap. The flat-to-falling 200-day and September low mark key support.

Relative Performance Breakout in IWM On Hold

We are also seeing failures in a number of bull flags. The chart below shows the Russell 2000 ETF (IWM) going for a breakout on Thursday-Friday, only to be rejected on Monday-Tuesday. Flags are short-term patterns that are vulnerable to whipsaws when trading turns choppy. Long-term, the trend is up with support in the low 140s.

With small-caps turning back at resistance, the relative performance breakout is back on hold. A break back below the 200-day would show small-caps lagging again.

Industrials and Finance Sectors Get Cold Feet

The Industrials SPDR (XLI) was one of the leading sectors in mid October because it broke above its September highs. XLI stalled after breaking the consolidation zone and fell rather hard the last two days. Again, we are seeing a gap down on Monday and follow through on Tuesday.

The Finance SPDR (XLF) sports a failed pennant breakout and a decline back below the falling 200-day SMA. XLF also failed to take out its September high and has been lagging year-to-date. The failed pennant, Monday gap and Tuesday decline suggest that the short-term uptrend reversed and a triangle break would follow.

Regional Bank ETFs Give Back Big Surge

And what about the Regional Bank ETF (KRE)? KRE broke out of a falling flag on October 16th and exceeded its August high. KRE held up well on Monday with a small decline, but got hit hard on Tuesday with a sharp decline that gave back all the gains from Thursday, which is when KRE surged above its 200-day. Traders playing the flag breakout can note the ATR Trailing Stop at 40.04. The flag low marks support from the most recent reaction low.

Also note that the surge from September 24th to October 23rd is starting to smack like the one from May 14th to June 5th. KRE was suddenly looking like a leader in early June and then fell into a slump with a falling wedge into September.

We can also include the S&P MidCap 400 SPDR (MDY), S&P SmallCap 600 SPDR (IJR), Aerospace & Defense ETF (XAR), Mortgage Real Estate ETF (REM) and US Oil Fund (USO) on the failure list. The Semiconductor ETF (SOXX) is above its 50-day SMA, but fell ten of the last eleven days.

We can expect above average volatility from now until the election outcome. The long-term trend for the S&P 500 is still up and the breadth models have yet to trigger bearish. The failures in the groups shown above are a concern and I will be watching to see if this selling pressure spreads.

Thanks for tuning in and stay safe.

Where to Chart the ATR Trailing Stop, the Trigger in SPY and the Developing Flag

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This article updates the ATR Trailing Stop and show how anyone can chart it. As noted in the first part, the Chandelier Exit and Parabolic SAR are lacking as far as I am concerned. The Chandelier Exit is fixed to the high based on a lookback period, which may or may not fit the current trade. Parabolic SAR is too volatile and complicated.

Where to Chart the ATR Trailing Stop, the Trigger in SPY and the Developing Flag Read More »

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

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Today’s video starts with a weekly chart of the S&P 500 SPDR to show how stocks are digesting the gains from the prior two weeks. This two week digestion formed small flags on many charts and the leaders are already breaking out. Leadership, however, is changing as techs sag a little. Small-caps, mid-caps, banks and utilities

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

Timing Models – Breadth Model/Indicator Review, Testing Model Signals with SPY and QQQ

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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.

Timing Models – Breadth Model/Indicator Review, Testing Model Signals with SPY and QQQ Read More »

Bullish Consolidations Form, Banks Perk Up, Yields Spreads Narrow and Fed Balance Sheet hits New High

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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.

Bullish Consolidations Form, Banks Perk Up, Yields Spreads Narrow and Fed Balance Sheet hits New High Read More »

ETF Trends Patterns & Setups – Surge and Stall for IWM, Bond ETFs Struggle, Banks Show Strength

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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?

ETF Trends Patterns & Setups – Surge and Stall for IWM, Bond ETFs Struggle, Banks Show Strength Read More »

Activity in the Intermarket Arena: Bonds, Inflation-Indexed Bonds, Commodity ETFs and the Dollar

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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:

Activity in the Intermarket Arena: Bonds, Inflation-Indexed Bonds, Commodity ETFs and the Dollar Read More »

Weekend Video – Spinning Tops, Wedge Breakouts, ATR Trailing Stops, Bullish Breadth Thrust, New Highs in Cyclical ETFs and Oil Breakout

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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

Weekend Video – Spinning Tops, Wedge Breakouts, ATR Trailing Stops, Bullish Breadth Thrust, New Highs in Cyclical ETFs and Oil Breakout Read More »

Timing Models – Small-caps Poised to Outperform, GLD Divorces TLT, Breadth Models Improve, Yield Spreads Continue to Narrow

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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

Timing Models – Small-caps Poised to Outperform, GLD Divorces TLT, Breadth Models Improve, Yield Spreads Continue to Narrow Read More »

ETF Trends, Patterns and Setups – Key ETFs Fail to Confirm New Highs, Trailing Stops with ATR, Banks Still Lagging

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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.

ETF Trends, Patterns and Setups – Key ETFs Fail to Confirm New Highs, Trailing Stops with ATR, Banks Still Lagging Read More »

Weekend Video – Breadth Thrusts Show Broadening Participation, Falling Flag/Wedge Breakouts Extend, Banks and Finance are Still Lagging

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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).

Weekend Video – Breadth Thrusts Show Broadening Participation, Falling Flag/Wedge Breakouts Extend, Banks and Finance are Still Lagging Read More »

Timing Models – Small-caps and Finance Sector Perk Up as Breadth Indicators Show Broadening Participation

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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.

Timing Models – Small-caps and Finance Sector Perk Up as Breadth Indicators Show Broadening Participation Read More »

ETF Trends, Patterns and Setups – A Two Week Shift, Healthcare ETFs Remain Strong, SOXX and Retail Follow Thru

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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.

ETF Trends, Patterns and Setups – A Two Week Shift, Healthcare ETFs Remain Strong, SOXX and Retail Follow Thru Read More »

Q&A – Trend-Following notes, Broad Market Trend Filters and getting the Jump with the Short-term Breadth Model

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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.

Q&A – Trend-Following notes, Broad Market Trend Filters and getting the Jump with the Short-term Breadth Model Read More »

Weekend Video – Monitoring the Breakouts in SPY, QQQ and Tech-related ETFs, Retail and Housing Perk Up, as Bonds Break Down

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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

Weekend Video – Monitoring the Breakouts in SPY, QQQ and Tech-related ETFs, Retail and Housing Perk Up, as Bonds Break Down Read More »

Timing Models – ROC Shock Lingers, but Short-term Breakouts Hold

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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

Timing Models – ROC Shock Lingers, but Short-term Breakouts Hold Read More »

ETF Trends, Patterns and Setup – Breakouts from September Corrections, Laggards still Lagging and Bonds Sag

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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).

ETF Trends, Patterns and Setup – Breakouts from September Corrections, Laggards still Lagging and Bonds Sag Read More »

Weekend Video – Falling Wedges Take Shape, Select Tech and Housing Hold Up, Energy and Finance Remain in Doghouse

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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

Weekend Video – Falling Wedges Take Shape, Select Tech and Housing Hold Up, Energy and Finance Remain in Doghouse Read More »

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