ETF Ranking and Grouping – Laggards Come to Life – Putting Bounces into Perspective

Seven Reasons for Big Bounce and Bear Market

Stocks went on a tear the last three days with small-caps and some forgotten groups springing to life. The S&P SmallCap 600 SPDR and the Russell 2000 ETF are up over 10% the last three days. The Retail SPDR is up around 10%, while the Regional Bank ETF surged 15.6% and the Home Construction ETF soared 17.76%. These are three days moves! The S&P 500 and Technology sector lagged with smaller gains (~3.6%), but they can be excused after leading the prior weeks.

Hindsight is 2020, but I was considering the reasons for such a surge and came up with seven:

  • The siren song of the 200-day for the S&P 500
  • The short-term uptrend
  • The pennant breakouts in RSP, IJR, IWM and MDY
  • Turn of the month bullish bias
  • The Fed has the market’s back
  • The fiscal response has the economy’s back
  • News of a therapeutic for covid-19 and re-openings

The turn of the month covers the last four days of the month and the first four days of the next month. A 20-year backtest of SPY shows a bullish bias over this eight day period an average gain of 2.09% two thirds of the time and an average loss of 2.21% one third of the time. This could be due to window dressing at the end of the month and new money at the beginning of the month.

I also considered the bull market versus bear market argument and came up with seven reasons for a bear market (or at least not in a bull market).

  • Breadth models remain bearish
  • S&P 500 remains below falling 200-day SMA
  • Vast majority of equity ETFs are below falling 200-day SMAs
  • Not one sector hit a new high this month
  • TLT held up even when stocks surged (+1.6% the last 26 days)
  • GLD remained strong when stocks surged (+10.5% the last 26 days)
  • Fed acted for a reason

Monetary stimulus from the Fed is finding its way into the stock market. I am not going to base my positions on the Fed, but the Fed is clearly influencing the markets. There was a bullish breadth thrust in the S&P 500 this week, but the other breadth indicators have yet to trigger. I will simply keep to the models and wait for evidence of a turn. These models will be updated on Friday.

SPY Nears 200-day

The S&P 500 extended its short-term uptrend with a 3+ percent advance the last three days. The key benchmark is now less than 2.5% from its falling 200-day, which continues to sound the siren song. Makes me think of the siren scene in O Brother Where Art Thou? Since crossing 280 and the 50% retracement on April 9th, the index is up 5.4% the last 13 days. Wow, a 5.4% move in 13 days actually sounds tame.

SPY went from my caution zone to my danger zone and could even take out the 200-day. In fact, the ETF is pretty much back to its February 27th close, which is when the breadth models triggered bearish. I am still not throwing caution and danger to the wind. It has been a heck of a round trip, but this 30+ percent advance is still considered a bear market bounce.

The indicator window shows RSI(10) holding above 50 and keeping the short-term momentum cup half full. A break below 50 would signal a downturn in momentum. A number of other charts also show RSI(10) holding just above 50. The S&P 500 %Above 20-day EMA (!GT20SPX) is back above 80 and overbought for the third time this month.

Top 20 StochClose ETFs

I am still working on the follow up article showing backtest results using the StochClose(125,5), which is the 5-day SMA of the 125-day Stochastic Oscillator based on closing prices. It takes time to verify the signals and results. Most of the work is complete and I will post this article next week. For now, let’s look at the top 20 ETFs this week.

The image below comes from the StochClose(125,5) ranking for the core ETF list. You can read more in this article. 18 of the top 20 ETFs have values above 60, which suggests a long-term uptrend of some sort. This means the other 42 are not in long-term uptrends. Furthermore, the leader board is quite mixed with gold, biotechs, bonds and healthcare dominating the top 9. The other 11 feature several tech-related ETFs and a smattering of others. It is positive to see these tech-related ETFs in the top 20 and healthcare is the second biggest sector, but continued leadership from gold and bonds means risk-aversion has not gone away.

Charting Platform Update: This week’s charts, and probably next week as well, will still be from StockCharts, but note that I am still planning to transition to Optuma. StockCharts is still a good platform, but more is needed if I want to up my game. There are several reasons behind the move and these include: unadjusted data is the default, more flexibility with plot types for indicators, a broader database (FRED), scatter plots, ability to create custom breadth indicators and more.



I covered monthly charts for IBB, GLD, GDX and TLT last week, and will revert back to some daily charts this week. The first shows the Gold SPDR (GLD) hitting a new high in mid April and then stalling with a pennant. This is a bullish consolidation and a breakout would signal a continuation higher.

The next chart shows the 20+ Yr Treasury Bond ETF (TLT) within 2% of a 52-week high (closing prices). I am ignoring the spike to 180 on March 9th. After plunging with the rest of the bond market, TLT surged for three days and closed above 165 on March 23rd, date of the March low in SPY. SPY is up over 30 percent since this low and TLT is still holding strong. A true risk-on rally in stocks should be accompanied by a pullback in bonds. TLT is currently consolidating with a pennant of sorts and a breakout would signal a continuation higher.

The Biotech ETF (IBB) and Biotech SPDR (XBI) hit new highs again this week and remain the leaders. Their charts are long-term bullish, but both are quite extended short-term. The chart below shows IBB surging from a 52-week low to a 52-week high in five weeks (up over 30%). Also note that the ETF moved from a 52-week high to a 52-week low the prior four weeks (19-Feb to 17-Mar). No wonder healthcare stocks are doing so well. Market gyrations are giving everyone higher heart rates, indigestion and sleepless nights. Watch for an RSI(10) dip into the 30-40 zone for a mean-reversion setup.

Above 61.8% and 200-day


The next group of ETFs are leading the rebound with the highest retracements, but they remain below their February highs. These ETFs come from the tech sector, healthcare sector and bond market. Talking about a motley crew.

Tech accounts for 25.21% of the S&P 500 and is a true offensive sector. Healthcare accounts for 15.6% and is more of a defensive sector. With some 40% of the index strong, no wonder the S&P 500 is back near its 200-day SMA. Bonds are safe havens, especially with the Fed buying up corporate bonds.

The first chart shows QQQ surging around 30% since March 16th. The ETF was one of the first to break its 200-day and to exceed its 61.8% retracement. Despite this big advance, RSI(10) did not become overbought. I suspect that the two 3+ percent declines along the way derailed momentum. Perhaps QQQ is in an uptrend, but it is quite extended and ripe for a rest, which could involve a pullback or consolidation.

The next chart shows the Software ETF (IGV) with a rising wedge. Note that these trendlines are highly subjective and steep. Nevertheless, the immediate trend is up. As with QQQ, IGV is also extended after a massive advance the last six weeks and ripe for a rest. The other stock-related ETFs in this group sport similar configurations: sharp advances that exceeded the 61.8% retracements and 200-day SMAs, but did not exceed the February high.

The next chart shows the Corporate Bond ETF (LQD) breaking its 200-day on March 11th, hitting a 52-week low on March 19th and surging back above the 200-day on April 9th. It is like price action below the 200-day never happened. I am not sure what we can do with a chart where the Fed is one of the main buyers. In any case, a falling flag could be forming and this is a bullish continuation pattern. LQD is currently selling at a .60% premium to its holdings.

Above Average Retracement, but below 200-day


The next group of ETFs retraced an above average amount (61.8%), but remain below their 200-day SMAs. The bigger trends are down and these are still considered counter-trend bounces. The chart below highlights the Consumer Staples SPDR (XLP) as it exceeded the 61.8% retracement line and kissed the 200-day. It fell back the last seven days and has started underperforming (short-term). Overall, XLP is still up over 20% from the March low and it does not seem prudent to buy a counter-trend bounce when it gets so extended.

61.8% Retracement Bounces


The next group of ETFs are trading near their 61.8% retracement levels and their counter-trend bounces are still considered “normal”. Charles Dow suggested that secondary rebounds retrace one to two thirds of the prior move with one half as the base case. A 61.8% retracement is near the high end, but upside overshoots are feasible when the Fed is juicing the markets.

The chart below shows the Communication Services SPDR (XLC) with some more subjective and steep trendlines. The ETF touched the 200-day and 61.8% retracement level with Wednesday’s surge. Notice that the ETF actually fell 1.81% on Tuesday and opened -3.5% on Wednesday. This is not a dull market. As with the others, XLC is very extended after a 25% advance and near an area that could provide a headwind going forward.

The next chart shows the FinTech ETF (FINX) playing some catchup with a big move the last six days. The ETF is just below its 61.8% retracement line and falling 200-day SMA. Again, this is not a good spot for further gains. The long-term trend is down with the 52-week low and price below the falling 200-day SMA. The short-term trend is up, but very extended after a 40% surge off the lows.

Pennant-Flag Breakouts


There were a slew of flag breakouts this week and follow through was strong. Hindsight is 20/20, but I should have suspected that the short-term uptrends and Fed Kool-Aid could power the market even high towards month end. In general, I avoid marking bearish setups in uptrends and bullish setups in downtrends. However, this is no ordinary downtrend and the bullish bias in the stock market is hard to suppress.

Despite flag breakouts and follow through, the long-term trends are down for these ETFs. Moreover, I would consider booking profits if playing the flag breakouts. Perhaps there is more room to run, but a bird in the hand is sometimes worth two in the bush.  

The first chart shows IWM with a breakout on Friday and huge follow through the last three days. The ETF has now retraced between 50 and 61.8 percent of the prior decline. This is still one of the shallower retracements and small-caps are still lagging overall.

The next chart shows the Industrials SPDR (XLI) with a pennant breakout on Monday and follow through the last two days. This follow through was not as strong and XLI remains below the 50% retracement line, and WELL below the falling 200-day SMA. The bigger downtrend is still the dominant force at work here.

The Retail SPDR (XRT) broke out of a pennant on Friday and surged to the 50-61.8 percent retracement zone this week. XRT is up some 40% in 17 days, but still 8% below its falling 200-day SMA. The ETF is in no-man’s land: long-term downtrend, key retracement zone and short-term overbought.

Big Bounces off Short-term Support


The next group of ETFs got big bounces off short-term support levels. Perhaps they also formed falling pennants just before the bounce. The Home Construction ETF (ITB) surged over 20% in 4 days and over 50% in 28 days. And yet, it is still in the 50-61.8 percent retracement zone and below the falling 200-day SMA.

Big Bounces, but Shallow Retracements


The next group of ETFs were underperforming last week, but came to life this week with big bounces. They are still underperforming overall because their retracements are shallower than most (38-50 percent). The first chart shows XLF moving above its 38.2 percent retracement, but failing to exceed the mid April high. XLF is still one of the weakest sectors, perhaps the second weakest (after Energy).

The next chart shows the Regional Bank ETF (KRE) surging 20% in four days and retracing around 38% of the prior decline.  Again, the move is impressive and may have more room to run, but the ETF is lagging overall with a relatively shallow retracement. It is also some 25% below its falling 200-day SMA.



The energy-related ETFs are in the midst of strong counter-trend bounces, as is the Alternative Harvest ETF (MJ). I put the Silver ETF (SLV) here, but it is clearly not as weak as the others. SLV retraced around 50% of its prior decline and then stalled the last few weeks. Perhaps it is a sloppy pennant. However, the bigger trend is clearly down after the 52-week low and the ETF remains well below the 200-day SMA.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
Choose a Strategy, Develop a Plan and Follow a Process

Scroll to Top