ETF Grouping, Analysis and Ranking – Bear Market Extends and Takes more Prisoners

Stocks are in a freefall with small-caps leading the way lower. The Russell 2000 ETF is down some 25% over the last three weeks, while the S&P 500 SPDR is down over 18%. This is set to worsen with Thursday’s open. Most indicators are at or near oversold extremes after the steepest decline since 2008. We will get sharp oversold bounce at some point, but timing a bounce is challenging to say the least. Furthermore, the steep declines distort the charts and make analysis challenging, at best. Time is needed to let the dust settle and build some sort of base.

I do not suggest we will get a bounce to offer a ray of hope because we are in a bear market, and have been since late February. To give you an idea of just how unique the current plunge is, note that the S&P 500 was 10% above its 200-day SMA on February 20th and is now 10% below its 200-day SMA (March 11th, 14 days ago). This is by far the quickest such move since 1990.

Bad things happen in bear markets and there are few places to hide, very few. 59 of the 60 ETFs in the core list were down on Wednesday with only the Dollar Bullish ETF showing a gain. Utilities, REITs, housing, high yield stocks and preferred stocks were all hit this week. Weakness also infiltrated the bond market with big declines in the Aggregate Bond ETF and Corporate Bond ETF. More on these two later. Gold was hit the last two days, Silver broke down last week and the Gold Miners ETF is back below its 200-day.

ETFs Ranked by WASS

Note that the ETF ranking tables are separate from the commentary below. The ranking tables are designed to help with trend-momentum strategies, while the analysis below is based on price structure, setups, chart patterns and pattern breaks. Click here for a detailed article and video explaining the Weighted Average Stochastic Score (WASS) and how it can be used for a rotation strategy.  

ETFs to Watch

  • The 20+ Yr Treasury Bond ETF (TLT) is poised to bounce off a short-term retracement zone.
  • The Gold SPDR (GLD) is showing above average volatility and may not be immune to selling pressure.
  • The Corporate Bond ETF (LQD) broke down as its non-Treasury holding weighed.

Majority of ETFs Below 200-day SMAs

The scatter plot below shows the 60 Core ETFs with the %Above 200-day SMA on the y-axis and RSI(14) on the x-axis. Only four ETFs are above their 200-day SMAs: TLT, GLD, AGG, TAN. The rest are below with the three energy related ETFs (XES, FCG and XOP) the furthest below. Along with XLE and AMLP, they are also the most oversold with the lowest RSI(14) values.

The next scatter plot shows ETFs that are below their 200-day SMA and with RSI(14) ranging from 20 to 40. ETFs to the left are oversold with RSI below 30, while ETFs on the right are not technically oversold (RSI > 30). Technically, ETFs with RSI(14) above 30 are holding up better over the last three weeks. However, as we shall see below, holding up and actually being up are two different things. These charts were created using Optuma software.

Only Two ETFs are Truly Holding Up

The Gold SPDR (GLD) fell over the last two days as the Dollar surged. Dollar strength, however, is not the reason gold fell and these two are not always negatively correlated. Note that both the Dollar and gold were trading at 52-week highs on February 20th and advanced sharply from January 1st to February 20th. Gold is gold and the Dollar is the dollar. Keep them separate.

The next chart shows weekly prices for GLD and volatility picking up the last four weeks (+3.83%, -4.09%, +6.18% and -2.3% so far this week). I am not a fan of volatility and prefer quiet setups, such as the two falling wedges in 2019. In addition, volatility is more negative than positive. Thus, while gold seems like a natural alternative to stocks and bonds, big declines in two of the last four weeks show that it is not immune to whatever is out there.

The 20+ Yr Treasury Bond ETF (TLT) fell sharply the last two days and alleviated last week’s overbought conditions. TLT fell back to the 50-61.8% retracement zone and this is the first place to expect a bounce. We will get a bounce because stock futures are trading sharply lower as I write and Treasury bond futures are sharply higher.

Recent Breakdowns


The Aggregate Bond ETF (AGG) and Corporate Bond ETF (LQD) were hit hard this week and this leaves TLT as the only bond ETF still standing. Other bond ETFs that focus exclusively on Treasury bonds are holding well too, such as IEF and IEI. The High-Yield Bond ETF (HYG) broke down along with stocks in late February.

Why did AGG and LQD tank? Take a look into their holdings. The image below shows the top bond holdings for AGG. Notice that less than 50% are US Treasury Bonds, which are the safest. 25.48% are mortgage backed securities, which remind me of “The Big Short”. 15.13% are from Industrial companies and 7.81% are from Financial institutions. The Industrials SPDR (XLI) and Finance SPDR (XLF) are at 52-week lows and hurting.

The Corporate Bond ETF (LQD) was hit even harder and broke below the November low and 200-day SMA. As the holdings show, almost half of the bonds are deemed “low medium grade”. This is the bottom rung of the investment grade category and these bonds are next in line to drop below investment grade. Furthermore, notice that 25.64% are from the finance sector and 8.64% are from the Energy sector. These two seem related right now because the sharp decline in oil is putting pressure on leveraged drillers and their creditors. The Regional Bank ETF (KRE) and Oil & Gas Equipment & Services ETF (XES) are two of the worst performing groups the last few months.

Holding Up, But Still in Downtrends


There are only a handful of equity-related ETFs trading above their early October lows. As you can see, this list is dominated by Technology and Healthcare. Even though nine ETFs are “holding” up better than the broader market, they are still down sharply over the last three weeks (10 to 20 percent). They are still stock-related ETFs and they are still under the influence of the broad market environment, which is bearish.

The chart below shows SPY below its October low and within a few cents of a 52-week low. The Technology SPDR (XLK) is down around 20% and would record a 52-week low with another 14% decline. The Biotech ETF (IBB) is down around 13.5% and would record a 52-week low with another 10% decline.

Notice that I am NOT marking support or extending the chart to find the next Fibonacci retracement zone. Why? Because we are in a bear market and bear market rules apply. This means support levels and bullish reversal zones are questionable, at best. In contrast, resistance levels and bearish reversal zones are more likely to work, if and when we get a bounce.

Utes, REITs and Staples Back below 200-day SMAs

All eleven sector SPDRs are below their 200-day SMAs and five recorded 52-week lows this week (XLY, XLI, XLF, XLB, XLE). The Technology SPDR (XLK) moved back above its 200-day on Tuesday, but fell back below on Thursday. The Utilities SPDR (XLU), Consumer Staples SPDR (XLP) and Real Estate SPDR (XLRE) surged above their 200-day SMAs last week, but then fell sharply the last five days and forged lower lows. This big pop and an even bigger drop shows that even the defensive names are not immune to the power of the bear market.

ETFs in the Bear Zone

The vast majority of ETFs on this core list are in long-term downtrends as they recorded multi-month lows or 52-week lows. These ETFs are also below their 200-day SMAs. Even though many are very oversold and ripe for a bounce, I am not a fan of catching falling knives and playing for oversold bounces in a bear market or long-term downtrend. The bear market and long-term downtrend are the dominant forces at work.

The chart below shows the Medical Devices ETF (IHI), which broke the early October low and is still above the spring lows. It is holding up better than ETFs that hit 52-week lows, but worse that ETFs that are still above their early October low. Nevertheless, the chart is still bearish as the breakout zone and 200-day failed to hold a week ago and the ETF exceeded its August-October lows this week.

Thanks for tuning in and stay safe!

-Arthur Hill, CMT
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