Stocks were broad-sided as the stock market fell sharply. Even though the S&P 500 SPDR remains in the falling knife category and has yet to bounce, I am on the look out for ETFs that hold up relatively well during this onslaught. There are several ways to separate ETFs with relatively strong charts and those with relatively weak charts.
Stocks extended their advance this week with most of the ETFs in the core list participating. The flag and pennant breakouts from early February worked as many moved sharply higher the last 12 days (February). QQQ, FINX, XLK, IPAY and IGV are up over 7% this month and leading. Tech, tech and more tech.
My, that was quick. A few days ago, Friday January 31st, to be exact, the S&P 500 SPDR and Russell 2000 ETF were down year-to-date. The S&P 500 had just suffered its worst weekly decline since late July (-2.14%) and the small-cap Russell fell 2.94%. In addition, seven of the twelve sector SPDRs were down year-to-date on January 31st
The defensive names further improved this week, while the number of ETFs showing real weakness expanded. ETFs related to bonds, precious metals (sans silver), utilities and REITs remain strong. We saw the 20+ Yr Treasury Bond ETF, Aggregate Bond ETF and Gold SPDR extend further on their falling wedge breakouts. The Utilities SPDR is the leading sector here in January with a 6.24% gain.
There are plenty of strong uptrends in the core ETF list. In fact, 50 of the 60 ETFs in this core list are in uptrends of some sort. The S&P 500 SPDR (SPY), Nasdaq 100 ETF (QQQ) and Technology SPDR (XLK) are in group 1 and in the strongest uptrends. Large-caps and large-cap techs are still the strongest overall.
The strong continue to strengthen and the laggards are leading short-term. Overall, this suggest that the bull market continues to broaden and pick up more converts. The S&P 500 SPDR, Nasdaq 100 ETF and Technology SPDR were leading all year and they simply extended their leads with fresh new highs this week. The energy-related ETFs were lagging all year and then surged over the last five weeks.
Strength in the US stock market is broad-based with 25 of the 46 (53%) equity-related ETFs hitting new highs over the last five days (including EFA). Of the 21 ETFs that did not hit new highs, several led the stock market over the last two weeks with big counter-trend bounces. Four energy-related ETFs were up double digits the last 11 days and XLE (+5.83%) is the leading sector over this time period.
The market finally showed a vulnerable side this week with a sharp pullback on Monday and Tuesday. A corrective period at this stage would be perfectly normal because stocks were up sharply in October and November. We also saw several flag breakouts fail. These failures are not enough to affect the long-term trends
We have seen a pronounced shift over the last few weeks. ETFs that were lagging and in downtrends are breaking out and starting to lead, while ETFs that were leading a few months ago are correcting and lagging. Add ETFs that where already strong and leading to the mix, and we have the recipe for a broadening bull market in stocks.
The goal of this commentary is to cut through the day-to-day noise and focus on price action that actually matters. Noise can be in the form of news or random price fluctuations. Either way, we are often better off when we filter the noise and focus on what really matters. So what really matters? Trends …