ETF Ranking, Grouping and Analysis – More Downtrends than Uptrends Out There

The bond and gold related ETFs continue to lead the pack as money moves out of stocks. A handful of stock-related ETFs held up in late February with normal retracements and some even sport shallow retracements. Nevertheless, the damage has been done when it comes to the majority of stock-related ETFs, and hence the broader market environment.

The decline at the end of February was enough to derail the uptrend in some two dozen stock-related ETFs. We are talking multi-month lows and 52-week lows. Overall, it is hard to be classified in an uptrend after recording six month lows or 52-week lows. The majority of ETFs are now classified in downtrends after the February rout, despite the bounce over the last three days.

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) and Gold SPDR (GLD) are getting quite extended as the 11-week Rate-of-Change exceeded 10%.
  • The S&P 500 SPDR (SPY) retraced just over 50% of the February slide and this means the oversold bounce is already ripe for a resistance or a reversal.
  • The Biotech ETF (IBB) held up relatively well with a shallow retracement in late February and is within 2% of a 52-week high.
  • The defensive and rate sensitive ETFs led the charge over the last three days (XLU, XLRE, XLP), while the offensive ETFs lagged with smaller gains.

Uptrend and Near New High


Bonds remain strong with the Aggregate Bond ETF (AGG), 20+ Yr Treasury Bond ETF (TLT) and Corporate Bond ETF (LQD) hitting new highs again this week. All three are in clear uptrends and leading the core ETF chart list with the strongest uptrends. TLT, however, is getting quite extended after a 13.2% advance the last 11 weeks. The chart below shows TLT breaking out of a falling wedge and moving to new highs the last two weeks.

The indicator window shows the 11-week ROC exceeding 10% for the fourth time in four years. TLT pulled back the last three times ROC(11) exceeded 10%. This overextended condition is NOT a bearish signal. It just argues for a little caution because the advance is going ballistic. It could certainly continue, especially if stocks weaken. Treasury bonds, after all, are the normal alternative to stocks.

The Gold SPDR (GLD) is also getting extended after a 10+ percent advance the last 11 weeks. The chart shows GLD with two normal retracements, two falling wedges and two breakouts last year. The yellow lines show when 11-week ROC exceeds +10%. GLD was overextended in mid July, but tacked on another 7% before a correction unfolded. This is why overbought and overextended conditions are not an exact science and why they are not outright bearish, especially when the bigger trend is clearly up.

Shallow Decline and Retracement (~38.2-50%)


Pretty much everything equity-related fell in the month of February. Some names, however, held up better than others by retracing less of the prior advance (Oct to Feb). For example, the Solar Energy ETF (TAN) and Biotech SPDR (XBI) retraced around 50%, while the Biotech ETF (IBB) retraced around 38%. The shallower the retracement, the less weakness and the more relative strength.

The chart below shows IBB surging some 29% from early October to early January and then embarking on a choppy trading range the last two months. This range is basically a consolidation after a sharp advance, which makes it a bullish continuation pattern. In a normal bull market environment, a breakout at 124 would be bullish and signal a continuation higher. However, we are NOT in a normal bull market environment. This means pullbacks and oversold conditions are preferred over breakouts and higher highs. IBB became oversold at the 38% retracement last Friday and surged over 6% this week. As a mean-reversion trade, traders should be thinking of exit strategies. Chartists with longer time horizons might consider a trailing stop, such as a Chandelier Exit (22,2). Plan your trade and trade according to that plan!

GLD broke out a few weeks earlier than TLT with a move out of the falling wedge in late December. After stalling from early January to early February, GLD took off the last three weeks and hit a new high on Monday. The test of the January low and RSI bounce in the 40-50 zone provided the last bullish setup. Now it is time to wait for the next one.

Sharp Decline, but Normal Retracement (~61.8%)


Now we get to the ETFs with deeper declines that still retraced a “normal” amount. Some held above the 61.8% and some overshot it, but they generally managed to firm or bounce after retracing around 61.8%. Note that there is NOTHING magical about Fibonacci numbers, such as 38.2%, 61.8% or 1.618. A century ago Charles Dow asserted that corrections typically retrace one to two thirds of the prior advance with 50% as the base case. Personally, I would prefer 33.33% and 66.67% on the retracements tool because this is the zone where we go on alert for a potential reversal.

The Nasdaq 100 ETF (QQQ), Technology SPDR (XLK) and Technology-related ETFs all managed to firm around their 61.8% retracements on Friday and bounce the last four days. The ability to hold near the 61.8% or 66.67% retracements means the decline, while sharp, is still considered a correction within a bigger uptrend. However, we are not in a normal bull market environment. As such, I do not expect this low to mark the low of this move. Bearish resolutions and negative outcomes are more likely when the broad market is correcting or the overall environment is bearish.

The next chart shows the Software ETF (IGV) with a breakaway gap on 25-Feb and follow thru with further weakness to the 61.8% retracement. Note that the charts are littered with these breakaway gaps on 25-Feb and most are holding. Even though IGV bounced after hitting the 61.8% zone and becoming oversold, it is unlikely to be immune to the swings in the broader market (SPY). Ditto for the Semiconductor ETF (SOXX).

Sharp Decline, but Came Roaring Back


The next group of ETFs were hit hard last week, but rebounded sharply this week and retraced 60 to 80 percent of the prior decline. I put out an article this weekend that showed how to quantify “pullback” retracements using Williams %R. We can quantify “rebound” retracements by using the Stochastic Oscillator. SPY peaked on February 19th, 11 days ago and the 11-day Fast Stochastic (11,1) is at 51.03, which means SPY retraced 51.03% of the prior decline. The Stochastic Oscillator value reflects the level of the close relative to the intraday high-low range over a timeframe.

The chart below shows the Consumer Staples SPDR (XLP) dipping below its August lows last week (intraday) and then retracing 82% of this decline with a surge above 63. Notice that the close is well above the 61.8% retracement and the 11-day Fast Stochastic is at 82.06. The rebound is certainly impressive and one of the strongest rebounds in the market. Consumer Staples are defensive stocks, but they are still stocks so I am not interested in XLP after a 9% gain the last three days. In addition, the chart is too chaotic for my visual brain to find a pattern at work.

The next charts shows the Real Estate SPDR (XLRE) breaking below its December low and breaking below the lower trendline of a rising channel. Even though XLRE rebounded and retraced 69.71% of the February plunge, it still forged a lower low and still broke the channel. The damage has been done and XLRE has proven itself vulnerable to broad market weakness. Keep in mind that correlations rise in bear market environments and there are few hiding places.

Trend Changing Decline, but Held October Lows


The next group of ETFs underwent trend-changing declines in February, but ultimately held their October lows (for now at least). Many came close and many broke their 200-day SMAs. Basically, the decline at the end of February was strong enough to inflict long-term technical damage. Even though I could find support zones and Fibonacci levels below current levels if I looked hard enough, I cannot ignore the depth of the February decline. It did some serious damage and time is needed for repairs. Basically, I stop looking for support and bullish reversal zones when the trend is down.

The first chart shows the Industrials SPDR (XLI) moving from a 52-week high to an intraday 52-week low in just 11 days. The ETF broke the December low and 200-day SMA in the process, and the 200-day SMA turned down recently. This is bearish price action. As with most stock-related ETFs, XLI was extremely oversold on February 28th and got a big bounce the last three days. This bounce was expected and does not undo the technical damage.

The next chart shows the Finance SPDR (XLF) falling back to its summer lows with a support break in late February. The ETF also broke the 200-day SMA and this moving average is turning down. The technical damage has been done.

No Clue on Gold Miners and Bearish on Silver    


The Gold Miners ETF (GDX) and Silver ETF (SLV) are all over the place. GDX broke out of a triangle on 19-Feb, hit a new high a few days later and then plunged below its rising 200-day SMA. One could chalk this up to a little noise, but this is not normal price action for an uptrend and GDX goes on the avoid list. The chart is too chaotic.

The Silver ETF (SLV) formed a rising wedge from December to late February and broke down with a sharp decline. This break is bearish and holding so far. SLV is also too chaotic for my taste and is on the avoid list, which is getting quite long after recent volatility.

Broke Summer Lows


The Aerospace & Defense ETF (XAR) was in a steady uptrend with a series of consolidations, breakouts and new highs. This suddenly ended with a sharp decline that exceeded the August low. It is impossible, as far as I am concerned, to be in an uptrend after exceeding recording a six month low. Perhaps it was an overshoot, but the breakdown is considered bearish and time is needed to repair.

52-week Lows


Now we get to the new lows and downtrends. Mid-caps (MDY), small-caps (IJR), banks (KRE and KBE) and metals (REMX and XME) recorded 52-week lows at the end of February. The chart below shows IJR with a lower high from January to February and a break down that started with a big gap. 52-week lows are the ultimate negative, but we can still see choppy trading and oversold bounces within downtrends. Overall, IJR is still weaker than average because it did not exceed the 38% retracement with this week’s bounce.



The energy-related ETFs continue on the list of strong downtrends. The Energy SPDR (XLE) broke down in late January, stalled in early February and continued lower in late February. The decline actually accelerated as XLE fell some 17% in six days. The ETF is also ripe for an oversold bounce, but this would be considered a bounce within a bigger downtrend. Short-term counter-trend moves carry above average risk.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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