Recent Commentary and Analysis
We all know that the S&P 500 is driven by large-caps, especially the big four, which account for over 20% of the index (AAPL, MSFT, AMZN, GOOGL). Furthermore, most of us are aware that breadth measures are not as strong as the S&P 500 and this is reflected in the S&P 500 EW ETF (RSP), which has yet to clear its June high. Breadth, however, is not exactly weak. It is just strong enough to sustain the advance. In other words, the cup is half full, not half empty.
ETF Trend/Pattern Ranking and Grouping – Strong Extensions, Second Winds, Modest Extensions, Corrective Patterns, Laggards and Breakdowns
Stock-related ETFs remained strong and many so-called overbought ETFs became even more overbought as their uptrends extended. Many ETFs are in the trend-monitoring or waiting phase. The early breakouts occurred in July and these ETFs followed through with further gains the last several weeks. Some tech-related ETFs stalled in late July and early August, but caught a second wind with breakouts over the last few weeks.
Picking Moving Average Combos that Adapt to Changing Environments – Comparing Daily, Weekly and Monthly Signals
This article will explore and backtest different moving average combinations on the S&P 500 SPDR over the last twenty years. Most moving average strategies work great when SPY trends, regardless of the period settings. However, SPY (aka, the market) does not always trend and trends are not uniform. Some are short and fast, while others are long and steady. This means we need moving averages that can best adapt to different environments.
The total number of new highs in the S&P 500, S&P MidCap 400 and S&P SmallCap 600 continues to underwhelm. Even so, new highs are still outpacing new lows and this is enough to keep the uptrend since late March going. The first chart shows new highs and lows for the three indexes with horizontal lines at the 10% level (e. g. 50 and -50 for the S&P 500).
Timing Models – SPY Tags a New High, Medium-term Indicators Favor the Bulls and SPX Breadth Model Remains Bullish
The bulk of the evidence remains bullish for large-caps, large-cap techs and mid-caps, but mixed for small-caps. I am also seeing mixed performance within the S&P 500, especially when looking at the equal-weight sectors. Technology, Healthcare and Consumer Discretionary remain strong, while Finance, Energy and REITs are weak. Finance is the only big sector that shows underlying weakness though.
ETF Trend/Pattern Video – Bonds Oversold, Gold Turns Volatile, XLY Holds Chandelier, REITs Vulnerable and Dollar Springs Bear Trap
Today’s video will focus on the core ETF charts. We will start with the scatter plot and see that the bond ETFs in the upper left, which means they are oversold and in uptrends. On the ranking tables, ETFs related to Consumer Discretionary, Healthcare and Technology are leading. I continue to follow the Chandelier Exits for several ETFs as their uptrends extend (XLY, ITB, XRT). Elsewhere
ETF Ranking, Grouping and Analysis – Mean-Reversion Setups in Bond ETFs, Bounces in Biotech ETFs and Breakouts in Two Healthcare ETFs
Despite the usual pockets of weakness, there is still plenty of strength out there in ETF land. Housing, Retail and Consumer Discretionary ETFs moved to new highs. Tech-related ETFs remain mixed with some hitting new highs and some moving back into their consolidation patterns. Precious metals ETFs got sizable mean-reversion bounces, but it looks like volatility is picking up in this group.
Q&A – How to Use the ETF Rankings, RSI65 versus StochClose, Settings for Chandelier Exits and Trend-Timing the Broader Market
I received some pertinent questions over the weekend and create a post to share the answers. My email answers were not as detailed as in this post, which provides more details and examples. The first question deals with the StochClose ranking and how to use it. This answer will also highlight seven broad trading strategy groups. Second
Today’s video starts with a long-term weekly chart of the S&P 500 SPDR and the reason I consider this advance as a medium-term uptrend. The medium-term trend indicators remain in bull mode and the mid-cap breadth model turned bullish this week as participation broadened. We can see this in the ranking tables as the StochClose values shot up for the Industrials SPDR and Regional Bank ETF.
Even though the current advance is getting quite extended, the broad market environment remains bullish and the medium-term uptrends rule. Tech-related ETFs and stocks drove the market higher from late March to late June. Even though the tech surge slowed, participation broadened over the last six weeks as other groups picked up the slack. The Industrials SPDR (XLI) is the top performing sector since July 1st
There are still a lot of uptrends out there in ETF land, and this includes some key stock-related ETFs. Nevertheless, we are seeing some rotation at work the last few weeks. The tech-related ETFs slowed their advance and some even failed to hold their breakouts. Meanwhile, ETFs related to consumer discretionary continued higher and are leading the pack. However, some of these new leaders are getting extended (XLY, XHB).
Weekend Video – Participation Wanes, but Low Vol and Key Indicators Support Uptrend as Money Rotates
Today’s video starts with the medium-term indicators and the overall trends for the S&P 500 SPDR, S&P 500 EW ETF, S&P MidCap 400 SPDR and Russell 2000 ETF. These are the broadest index ETFs out there and money moved into mid-caps and small-caps this week. The advance since April is marked by falling volatility and we will look at two indicators to monitor volatility.
The Healthcare SPDR (XLV) is one of the strongest sectors in 2020. Even though it does not sport the biggest gain, XLV recorded a new high in July and some 80% of its components are above their 200-day EMAs. The new high points to a long-term uptrend and upside leadership, while the percentage of stocks above the 200-day EMA points to broad strength within the sector. Sector SPDRs, however, are only as strong as the sum of their parts (component stocks).
Timing Models – Falling Volatility Powers SPY and Breakouts Hold, but Participation Continues to Wane
The chart below shows year-to-date performance for the top 20 stocks in the S&P 500. Overall, the year is mixed with eleven up and nine down. Amazon is up over 70%, Apple is up over 50% and Microsoft is up over 30%. Facebook and Home Depot are dragging their feet with gains greater than 20%. As strong as the stock market seems, strength is clearly concentrated in a few stocks. Moreover, these few stocks are up big, really big.
After some volatility and big moves in March, April and May, trading has turned downright boring the last few weeks. Nevertheless, the majority of breakouts are holding and there are plenty of leaders. Tech, housing, retail, precious metals and Healthcare continue to lead. ETFs related to Finance and Energy continue to lag. Industrials and small-caps perked up this week and extended on their breakouts, which were looking rather feeble just last week.
Today’s video starts with the medium-term uptrend and key indicators for the S&P 500 because they hold the key as we move into August. The bulk of the evidence remains bullish, but fewer stocks participated in the July advance and the market took a more defensive tone. The breakouts in IWM and XLI were not inspiring, XLF continues to lag and XLU was the top performing sector in July. I will also review the excesses in QQQ, the seasonal patterns, the breadth models, the ChartBook, the Fed balance sheet and yield spreads.
There are times for setups and signals, and there are times to wait. The waiting game is either waiting for the next setup/signal to materialize or monitoring the current signal in play. At this stage, we are in the monitoring stage for several signals that triggered in the first half of July.
The slow rotation continues in the stock market. Tech and biotech related ETFs lagged over the last five days with declines, while ETFs related to housing, retail, banks and small-caps picked up the slack. Note that SPY is down .53% the last five days and the S&P SmallCap 600 SPDR (IJR) is up 1.94%.
RSI is widely used as a momentum oscillator to identify overbought and oversold levels. A dive into the formula, however, reveals that RSI is quite well equipped for trend-following strategies. It can even be used to rank ETFs and stocks to find those with the strongest momentum.
QQQ and tech stocks took a breather this week, but the Consumer Discretionary sector, Housing and Retail picked up the slack. SPY and IWM were down fractionally, while QQQ fell around 1.5% on the week. Today’s video starts with a new signal in the S&P 500 breadth model. Despite this signal, the medium-term uptrend remains the main focus and we will cover the key indicators.
My current focus remains on the medium-term up trends, which began with the surge in late March. The bulls are still in control of these medium-term trends and we saw several short-term breakouts in July. Some breakouts were strong as price exceeded the June high (SPY), while some were feeble as price remains well below the June high (RSP). Strong or feeble, the breakouts are still holding and have yet to be proven otherwise.