There’s been a shake up this week. A handful of equity-related ETFs are in the top group, as far as the trend, patterns and setups are concerned. However, I downgraded several groups because it looks like SPY and QQQ are moving further into correction mode. The majority of stock-related ETFs will be under pressure should SPY correct and the majority of tech-related ETFs will be under pressure should QQQ correct.
With equity-related ETFs looking vulnerable to a correction, I upgraded some the less correlated ETFs. The bond proxies (XLU, XLRE, REM) were upgraded because they have short-term breakouts working. IBB and XBI were also upgraded because of their channel breakouts this week. The bond-related ETFs (TLT, AGG, LQD) were also upgraded because TLT broke out of a falling wedge and has yet to fully negate this breakout.
Precious metals related ETFs are a tough call because they are positively correlated with stocks and stocks are looking vulnerable to further weakness (see SPY, QQQ, XLK). The Dollar is also negatively correlated with SPY and weakness in stocks could put a bid into the Dollar. In short, bond proxies and biotechs look the strongest right now.
Programming note: I am also shaking up the ETF ChartBook a little. First, the ChartBook is organized in a top-down format (major index, sector, industry group…). Second, I culled the list by removing MTUM, USMV, IYR, VIG, PFF, EFA and IEMG. These charts are still at the end of ChartBook this week with the rational for removal. And finally, the ETF grouping and ranking is shown in the commentary below. The scatter plot and ranking tables are available in the PDF file above.
The charts below are linked to an equivalent StockCharts chart.
ETF Grouping and Ranking by Trends, Patterns and Setups
1) New high or new near high
XLB, BOTZ, ITB and TAN hit new highs or almost hit new highs this week and are leading. Longer-term, however, they are still ripe for a correction and unlikely to buck the broad market, should SPY correct.
2) September breakout working, though lagging long term
XLU, XLRE and REM are lagging longer-term and consolidating the last few months, but short-term breakouts are working in September as money moves into these bond proxies.
3) Fell back after breakout, but still above support
TLT, AGG and LQD broke out of falling wedge patterns with surges in early September, but fell right back into the patterns and consolidated. All three have gone nowhere since mid August and I am watching the four week range for the next directional blue. Note that TLT is the pure play here for Treasuries bonds and stock alternatives. AGG is 38% Treasuries, 26% Mortgage Backed Securities and around 30% corporate bonds.
4) Stuck in a bullish continuation pattern (no breakout)
GLD, GDX, SLV, XME and REMX remain with bullish continuation patterns and above their 200-day SMAs, but have yet to break out. GLD, GDX and SLV have triangle/pennants working, while XME and REMX have falling flags working. Dollar Index is shown in this group for reference.
5)Holding above breakout zones and support
XLV and IHI recorded new highs in early September, but stalled above their breakout zones since mid July.
6) New high in Sept and shallow pullback, but vulnerable
XLY and XRT recorded new highs in early September, fell with relatively shallow declines and bounced to form short-term bearish continuation patterns the last six days. Short-term breakdowns would argue for a deeper correction and retracement of the March-September advance.
7) New high, outsized decline, bearish consolidation
SPY, QQQ, XLK and the tech-related ETFs recorded new highs in early September, but were then hit with sharp declines. They stalled for 4-6 days with flat-ish consolidations and are setting up for short-term breakdowns. A short-term continuation lower would be part of a bigger correction that could retrace 33 to 50 percent of the March-September advance. SPY, QQQ, XLK, XLC, XLP, IGV, SOXX, FDN, SKYY, IPAY, FINX
8) Below February high, but above 200-day
RSP and XLI fell short of their January-February highs and did not record new highs. They are lagging long-term, but still in medium-term uptrends (March to September). The July lows and 200-day SMAs mark key support, a break of which would be bearish.
9) Lower high in June and September (lagging)
MDY, IJR, IWM, IHF and HYG did not challenge their January-February highs in late August (no new highs) and forged lower highs from late August to early September (relative weakness). Support breaks and breaks below the 200-day would be bearish.
10) Lower highs, below 200-day and lagging
XLF, KBE, KRE, KIE and XAR did not exceed their June highs and their June highs were well below their January-February highs. They are below their falling 200-day SMAs and seriously lagging.
11) The weakest of the weak
XLE, XES, XOP, AMLP and MJ are the weakest of the weak. All are below their falling 200-day SMAs and broke channel lines in mid August.
