Recent Commentary and Analysis
Weekend Video – Digesting Gains. Narrowing Spreads, Backtesting Breadth, Bank ETFs Surge, Checking Commodity ETFs
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
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.
Bullish Consolidations Form, Banks Perk Up, Yields Spreads Narrow and Fed Balance Sheet hits New High
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:
Weekend Video – Spinning Tops, Wedge Breakouts, ATR Trailing Stops, Bullish Breadth Thrust, New Highs in Cyclical ETFs and Oil Breakout
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
Timing Models – Small-caps Poised to Outperform, GLD Divorces TLT, Breadth Models Improve, Yield Spreads Continue to Narrow
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
ETF Trends, Patterns and Setups – Key ETFs Fail to Confirm New Highs, Trailing Stops with ATR, Banks Still Lagging
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.
There are 11 sectors in the S&P 500, but the big six are the only ones we need to be concerned with when making a broad market assessment. The big six account for a whopping 82.5% of the S&P 500, which leaves the other 5 with just 17.5%. Consumer Staples is the seventh
Weekend Video – Breadth Thrusts Show Broadening Participation, Falling Flag/Wedge Breakouts Extend, Banks and Finance are Still Lagging
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).
Timing Models – Small-caps and Finance Sector Perk Up as Breadth Indicators Show Broadening Participation
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.
ETF Trends, Patterns and Setups – A Two Week Shift, Healthcare ETFs Remain Strong, SOXX and Retail Follow Thru
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.
Q&A – Trend-Following notes, Broad Market Trend Filters and getting the Jump with the Short-term Breadth Model
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.
Weekend Video – Monitoring the Breakouts in SPY, QQQ and Tech-related ETFs, Retail and Housing Perk Up, as Bonds Break Down
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
ETF Trends, Patterns and Setup – Breakouts from September Corrections, Laggards still Lagging and Bonds Sag
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).
StochClose Strategy (Part 6) – Update, Thoughts on Cherry Picking, Testing with a Moving Average Filter
The StochClose strategy offers a systematic approach to trading a defined ETF universe. This is the sixth installment of a five-part series that started with an introduction to the StochClose indicator on April 21st. This first installment covered the rationale for the indicator and its settings, the signal thresholds and a ranking table. The second installment tested a momentum-rotation strategy, the third outlined a
The S&P 500 SPDR is down around 6% this month and QQQ is down around 8%. These two hit new highs on September 2nd, plunged the next three trading days and then worked their way lower. Both are below their 50-day moving averages for the first time since April.
Weekend Video – Falling Wedges Take Shape, Select Tech and Housing Hold Up, Energy and Finance Remain in Doghouse
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.