ETF Ranking and Grouping – Lots of Consolidations Appear and Bond ETFs Remain Strong

Programming Note: I am taking a long week off from Friday July 3rd to Saturday July 11th. This is why today's report is a day early. I will publish tomorrow and also produce a video. There will be no reports or updates during vacation because I will be spending some quality time with family. I will update the breadth models on return and post an update on Monday, July 13th.

Have a fun and safe 4th of July weekend!

There is a lot of stalling going on out there. A stall can be the pause that refreshes or it can signal a stalemate that leads to a trend reversal. Several ETFs broke their mid June lows, but the tech and healthcare related ETFs are holding up and have yet to break their mid June lows. Some tech-related ETFs are even trading well above these lows. Outside of tech, we are seeing lower lows in ETFs related to industrials, finance, utilities and energy. The S&P 500 SPDR remains above its June low right now and holds the key going forward. As such, SPY is covered in detail with two charts. Basically, the June lows hold the key going forward. The more breaks we see, the more participation to the downside and the more bearish.

Scatter Plot and Top Ranked

The scatter plot below shows StochClose (125,5) on the y-axis and 14-day RSI on the x-axis. Notice that the Gold SPDR (GLD) and the Aggregate Bond ETF (AGG) are in the upper right corner, which makes them the long-term and short-term leaders. Tech-related ETFs, biotechs, bonds and precious metals are in the upper right and leading. Finance and energy related ETFs dominate the lower left and they are lagging.

The next image shows the top twenty ETFs, when ranked by StochClose (125,5). Again, ETFs related to corporate bonds, precious metals, technology and biotech dominate the list. The 20+ Yr Treasury Bond ETF (TLT) made its way back into the top 20 and has a higher StochClose value than SPY. Hmm…

SPY Teeters

We will start with the S&P 500 SPDR (SPY) because it is the main driver when it comes to stocks and stock-related ETFs. Even though SPY is still above its mid June low, the evidence is turning more and more bearish. First, the S&P 500 Breadth Model is net bearish since June 11th. Second, 20-day High-Low Percent moved below -10% on June 24th for a bearish signal.

The next chart shows SPY with a possible pennant forming, which is technically a bullish continuation pattern. In fact, a lot of ETFs formed pennants or consolidations the last four weeks. Gazing within the pennant, note how SPY surged off support on June 16th (blue arrow) and did not follow through. The ETF instead fell back to the mid June low and 200-day SMA. SPY bounced the last two days and RSI bounced off the 40-50 zone. Thus, a short-term mean-reversion setup (bounce) is in play. A follow through breakout at 315 would be bullish.

Even though a pennant is taking shape and the Fed has its bazooka ready, the follow through failure in mid June is concerning (along with the bearish breadth model and 20-day High-Low Percent). All eyes are on the June low, the 200-day and the 5/200 day SMA cross. A break below 295 would be quite bearish at this stage. And finally, notice how Aroon Down broke above Aroon Up. They then fell in parallel fashion and this is what happens during a consolidation. The first to turn back up and break 70 would trigger a signal.

The rally off the March lows was fast and furious. It carried QQQ, XLK and many tech related ETFs to new highs and pushed many others above their 200-day SMAs. Outside of the tech-related ETFs, not one ETF exceeded their February high, including SPY. A downturn and medium-term trend reversal from here would put in a lower high and possibly signal a continuation of the February-March decline. Watch those June lows closely. Many ETFs already forged lower lows in June and more support breaks would be bearish for the broader market.

New Highs and Leading


Only two ETFs hit new highs this week. The Gold SPDR (GLD) hit a new intraday and closing high, while the Corporate Bond ETF (LQD) recorded a new closing high. The first chart shows GLD surging to a new high in mid April and then embarking on a rather long consolidation. Notice how the ETF tested support as RSI(14) tested the 40-50 zone on June 5th. The pullback into early June led to a classic mean-reversion setup as RSI became mildly oversold. StochRSI then surged above .80 for a momentum pop on June 10th and GLD broke out to new highs last week. GLD is clearly the leader of the pack.

The next chart shows LQD bouncing near the 200-day in mid May, breaking out of a falling flag on May 18th and hitting new highs in late June. The Fed is buying up corporate bonds and this gives new meaning to the term “don’t fight the Fed”.

Exceeded Feb high, Higher Highs and Lows Intact


*MTUM is still short of a new high. ETFs in this next group are also leading because they recorded new highs in June and have their string of higher highs and higher lows intact. However, they have yet to exceed last week’s high. This is a minor issue right now because all held above support from the mid June lows and remain in uptrends. These mid June lows mark uptrend support and a break below these would forge a lower low.

The chart below shows QQQ with two candlestick reversals in June and a bounce over the last two days. The red ovals mark four other bearish candlestick patterns in April and May. The medium-term uptrend is proving stronger than the candlestick reversals for now. The June low marks key support and a break here would reverse this uptrend.

The bearish failure swing is also working in RSI, but RSI remains above 50. Despite failing to get back above 70 on the late June bounce, the momentum cup is half full as long as RSI remains above 50. Notice that RSI has been above 50 since April 6th.

The next charts show the Cloud Computing ETF (SKYY) and Software ETF (IGV) hitting new highs last week and dipping a little after these highs. Both held well above their June lows and this shows limited selling pressure. Also notice that RSI has been above 50 since early April as the uptrends extended. These uptrends are intact as long as the June lows hold and RSI holds above 50.

Consolidation Breakout


ETFs in this next group broke out of consolidation patterns over the last few days. These include biotechs, gold miners, silver and bonds, a most motley crew. The first chart shows the Biotech ETF (IBB) with a setup similar to the GLD setup in early June. IBB fell back to support and RSI moved into the 40-50 zone to become mildly oversold. The Bollinger Bands also narrowed and IBB surged off support. After hitting a new high, the ETF edged lower the last five days and a small falling flag/wedge could be taking shape. A breakout here would signal a continuation higher.

The next chart shows a falling flag breakout in the Gold Miners ETF (GDX) on June 22nd, a falling flag breakout in the Silver ETF (SLV) on Tuesday and a consolidation breakout in the Aggregate Bond ETF (AGG) on June 15th. All three are above their 200-day SMAs and in long-term uptrends. GDX hit a new high in mid May and is perhaps the strongest. Admittedly, it is a bit strange to see gold, silver, gold miners and bonds with similar patterns.  

Consolidating after new High


ETFs in this next group hit new highs in early June and then consolidated with pennants. All four are above their 200-day SMAs. Pennants are typically short-term bullish continuation patterns that form after a sharp advance. They represent a rest within the uptrend, or the pause that refreshes. The ETFs bounced the last two days and are close to pennant breakouts.

Overall, the medium-term trends are up with the June lows marking key support. A break here would reverse the medium-term uptrend and call for at least a correction after the sharp advance from late March to early June.

Short Consolidation above 200-day


The next group of ETFs are consolidating above their 200-day SMAs, but they did not record new highs in June. Thus, they are not quite as strong as ETFs in the groups above because they did not record new highs. Nevertheless, they are above their 200-day SMAs.

The FinTech ETF (FINX) is the furthest above the 200-day and consolidating in a tight range. The Mobile Payments ETF (IPAY) is forming a pennant and slightly above its 200-day. Both bounced off support on Tuesday and follow through breakouts would keep the uptrends alive. The June lows mark key support for the medium-term uptrend and support breaks would reverse these uptrends.

The Home Construction ETF (ITB) and the Retail SPDR (XRT) are not quite as strong as the first two. They tested their 200-day SMAs in June and it would not take much weakness to break them. As with most ETFs, these June lows define the medium-term uptrends and breaks would reverse these uptrends. A break below the June lows would also break the 200-day SMAs in ITB and XRT. These two are important parts of the Consumer Discretionary sector, which is an important part of the economy.

Long Consolidation above 200-day


The three healthcare-related ETFs (XLV, IHF, IHI) underperformed from mid April to early June as the technology-related ETFs led. Nevertheless, all three held above their 200-day SMAs and consolidated over the last three months. They are also showing signs of life with bounces off support and RSI bounces off the 40-50 zone.

The first chart shows the Healthcare SPDR (XLV) getting hit hard in mid June and then bouncing off the support zone. There was another pullback last week and another bounce this week. In general a consolidation above the 200-day SMA should be a bullish continuation pattern. Thus, the bounce off support and RSI bounce off the 40-50 zone is the first bullish signal. As with the rest of the stock-related ETFs, the June lows mark key support and breaks here would reverse the uptrend. The second chart shows the Medical Devices ETF (IHI) with similar characteristics.

I put the 20+ Yr Treasury Bond ETF (TLT) in this group because it has some sort of bullish consolidation above its 200-day SMA. In fact, I see two bullish patterns taking shape. First, TLT reversed near the 61.8% retracement and broke out with a move above 164. Second, this breakout suggests that the handle of a bigger cup-with-handle pattern is taking shape. This is a bullish continuation pattern that would be confirmed with a break above the spring highs.

Near 200-day and Held June Low


The Core Emerging Markets ETF (IEMG) makes a rare appearance in this report as it hits resistance near the 200-day SMA and 61.8% retracement. A rising wedge is also taking shape and this is a bearish setup. A break below support and RSI break below 50 would tilt the balance back to the bears.

Above 200-day and Broke June Low


Weakness in Facebook (FB) pushed the Communication Services SPDR (XLC) below its June low, but it is still holding above its 200-day SMA. The ability to hold the 200-day SMA keeps XLC in the upper half of the core ETF list, but the lower low in June makes it weaker than ETFs that held above their mid June lows.

Below 200-day and Held June Low


Now we get into the weaker half of the core ETF list. ETFs in this group are below their 200-day SMAs and some have rising wedge patterns working. The rising wedge is a bearish pattern that forms as a counter-trend bounce (medium-term uptrend). The wedge should peak well below the prior high (February) and sometimes around the 200-day SMA. A break below the lower line is the first sign of trouble and break below the mid June low would fully reverse the wedge.  

The first chart shows the S&P MidCap 400 SPDR (MDY) with a three timeframe challenge. Long-term, the trend is down because of the 52-week low in March and falling 200-day SMA. Medium-term, the trend is up because the mid June low has yet to fold. Short-term, the ETF is at support and RSI is in the 40-50 zone. This could give way to a bounce. However, failure to bounce and a break below the mid June low would reverse the wedge and signal a continuation of the February-March decline. And then the Fed will step in….

IWM is really complicating things because the ETF formed a pennant and broke above the upper line as RSI moved back above 50. This is short-term bullish as long as it holds. A move below 136 would throw cold water on this breakout and put the bigger wedge back in play.

Below 200-day and Broke June Low


The next group of ETFs, three, are below their 200-day SMAs and forged lower lows from mid June to late June. They did not hold their mid June lows and showed relative weakness. These ETFs are not obscure and represent key parts of the market. They are the S&P 500 Equal-Weight ETF (RSP), Industrials SPDR (XLI) and High-Yield Bond ETF (HYG). Weakness in RSP means the average stock in the S&P 500 is struggling and weakness in XLI means the industrials sector is struggling. Weakness in HYG means junk bonds are falling and yield spreads are widening. This is not a good combination.

Failure at 200-day and Broke June Low


ETFs in the next group failed near their 200-day SMAs with reversals in early June and forged lower lows the last four weeks. These ETFs are lagging. The chart below shows the Finance SPDR (XLF), which is the fifth biggest sector and accounts for 10.10% of SPY. Not too long ago it was the third biggest sector and accounted for 12.45%. This is what makes the S&P 500 a closet momentum index. The strongest stocks and sectors get rewarded with higher weightings, while the weakest stocks and sectors get penalized with lower weightings. XLF reversed at the 200-day SMA and 61.8% retracement with a pair of gaps and exceeded its early June low this week.

Failure below 200-day and Broke June Low


ETFs in the last group are the weakest of all because they fell short of their 200-day SMAs on the March-June bounce. They also reversed in early June and forged lower lows in June. They are in long-term and short-term downtrends, and weighing on the broader market. The chart below shows the Regional Bank ETF (KRE) reversing in the 50-61.8% retracement zone and breaking the internal trendline last week. KRE bounced over the last two days and RSI bounced off the 40-50 zone, but the bigger downtrend and relative weakness keep me away.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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