Recent Commentary and Analysis
Sometimes what seems logical and helpful, is not and needs to be reconsidered. This is my conclusion with the sector breadth models. They are logical, and perhaps helpful at times, but they do not add value when it comes to timing trends in the sector SPDRs. A simple StochClose strategy performed better overall. This article will quantify signals for three breadth models using the sector SPDRs.
The Nasdaq 100 has been on a tear the last few months with a move to new highs, but a medium-term breadth indicator is not keeping pace here in February. This indicator is simply flashing the yellow caution sign right now and we have yet to see an actual signal that would point to a correction. Here’s what to look for.
Weekend Video and Chartbook – Oil and Base Metals lead, XLI and XLF Hit New Highs, TLT Plunges with Outsized Decline
Today’s video starts with a performance overview for 14 asset class ETFs, sectors and top S&P 500 stocks. Small-caps, oil and commodity-related ETFs are leading the charge here in 2021. Financials are leading as XLF hit a new high and industrials came to life with XLI hitting a new high on Friday. Even though the long-term trends are up and the market is bullish overall, participation is narrowing within
Timing Models – Commodities Lead in 2021, SPY Extends Uptrend, Extended Conditions Extend, Fed Balance Sheet Pops
Stocks and commodities are leading in 2021 (risk on). Small-caps took a breather this week, but the Russell 2000 ETF (IWM) is still the second best performer among 14 intermarket ETFs. The DB Energy ETF (DBE) is the top performer with an 18.9% gain and the DB Base Metals ETF (DBB) gets third place with a 7.5% gain. QQQ is holding its own with a 6% gain and the
ETF Trends, Patterns and Setups – Big Gains Since November, Big Months for Finance and Energy, A Few Corrections Underway
Making money in the stock market has been pretty easy since November. And not just stocks. Oil, base metals, agriculture and silver are also up. Gold, the Dollar and bonds are down as money moved out of stock-alternatives and into riskier assets. As shown below, dozens of ETFs are up more than 40% since early November and many are up more than 20%.
Not all ETFs are created equal and the name does not always tell the entire story. One would think that the Industrials SPDR (XLI) and the Industrials iShares (IYJ) are similar in make up and performance. This is not the case because one has a clear edge over the other.
Weekend Video and Chartbook – Uptrends Extend with Small Gains, ETFs Go from Oversold to New Highs, Not Many Setups
After big gains the first week of February, stocks followed through with smaller gains the second week. A gain is a gain and new highs proliferated. SPY, QQQ, IWM and over half the ETFs in the Core List hit new highs this past week. The trends are up, the up trends are strong and the breadth models remain firmly bullish. Concerns remain with overextended conditions in IWM, the RSI over 50 streak,
The major index ETFs are in clear uptrends with the big three hitting new highs again this week (SPY, QQQ, IWM). We also saw 52-week highs in three of the eleven sector SPDRs (XLK, XLC and XLY). These three were leading throughout 2020 and they continue to lead in 2021. XLI, XLV and XLF are close to 52-week highs so I will not read too much into this short-term non-confirmation. In any case, XLK, XLC and XLY account for well over 50% of the S&P 500
There were dozens of ETFs with short-term oversold conditions and short-term corrective patterns working at the end of January. With a bounce the last two weeks, we now have a slew of ETFs hitting new highs again and 27 ETFs in the Core list (119) with double digit gains here in February. Momentum is just the gift that keeps on giving. The performance since November is extraordinary. Here are some metrics since November 1st (69 days)
The seasonal patterns over the next two months are not very strong, but price action is strong with the S&P 500 hitting a new high. Price action is more important than the seasonal pattern because profits and losses are driven by price changes, not seasonal tendencies. Seasonality becomes a force when it aligns with price action. Let’s investigate.
Weekend Video and Chartbook – Oversold Bounces to New Highs, Seasonal Patterns, Froth IWM, Flag Breakouts
The stock market went from the biggest down week since late October to the biggest up week since early November. We saw new highs in SPY, QQQ and IWM. The Russell 2000 ETF continues to show signs of over exuberance and the seasonal patterns in February are mixed at best, but price action remains strong and the correction is on hold. Treasury bonds and gold were clobbered this week as the Dollar got an oversold bounce within a downtrend. Dozens
Timing Models – Red Herrings, Big Oversold Bounces, New Highs, RSI Streak Ended and IWM Remains Extended
Stocks shrugged off a sharp decline the last week of January and rebounded the first week of February with a strong surge. This surge extends the bigger uptrends as SPY, QQQ and IWM recorded new highs. The Technology SPDR (XLK) and Communication Services SPDR (XLC) led the sector SPDRs with new highs. The Consumer Discretionary SPDR (XLY) came close to a new high on Thursday and could hit one with further strength on Friday. The Energy SPDR (XLE) led with the biggest
ETF Trends, Patterns and Setups – Oversold Bounces Materialize, Techs Lead, Energy-Related ETFs Break Out, REITs Perk Up
Dozens of ETFs became short-term oversold last week and most of these bounced this week. A combination of bullish seasonal patterns (turn of the month), short-term oversold conditions and longer-term uptrends paved the way for this bounce. Despite these bounces, stocks in general still seem ripe for a corrective period and February is historically one of the weaker months.
Seasonality for the S&P 500 – Since 1950, A Big Change the last 20 Years, Weekly and Monthly Perspectives
Today’s report will take a deep dive into seasonality. Before doing so, note that seasonal patterns are not at the top of my analytical list. The same is true for sentiment. While I am aware of seasonal patterns and sentiment, my trading decisions are based on price (trends, patterns and setups). As with most secondary indicators, seasonal patterns should be used in conjunction with other analysis techniques (trend, overbought/oversold, outsized moves, patterns).
The turn of the month shows a strong bullish bias with an extremely stable equity curve that really took off the last few years. This strategy, which is only invested 38% of the time, outperformed buy and hold with a higher Compound Annual Return. Overall, the eight day percentage change at the turn of the month is positive 68% of the time for SPY. Despite strong numbers overall, February is weakest month when testing over the last twenty years, and we just happen to be in February.