Stocks were rattled on Wednesday with Technology, Communication Services and Consumer Discretionary leading the way lower. As noted on Tuesday, the magnificent seven dominate these three sectors. Selling pressure was not limited to tech as REITs, Biotechs, Airlines and Gold Miners were also hit. Year-to-date, it has been very rough sledding for tech and high beta ETFs. On the flipside, ETFs related to energy, carbon, banks, steel and consumer staples are holding up. Today’s commentary will review the charts for SPY and QQQ, update TLT, TNX and GLD, and then focus on the leading ETFs.
Next Week's Publishing Schedule
Next week’s commentary schedule will be a bit different because I go in for a non-invasive operation next week Wednesday (12-Jan). My overall health is good, but DNA and age (59 years) are calling. The procedure, which quite common, is a Holmium laser enucleation of the prostate (HoLEP). I will go under a general anesthesia and should spend one or two nights in the hospital.
Next Week’s Schedule:
Monday, 10 January: Strategy Article/Video
Tuesday, 11 January: Market/ETF Commentary and Video
Saturday, 15 January: Weekend Video? (depending on recovery)
Note that I am aiming to post between 8 and 8:30 AM ET.
SPY Fails to Hold Breakout
The breakout in SPY failed to hold as the ETF fell 1.9% and closed below the breakout zone. This is a short-term issue right now because the long-term trend remains up. The failed breakout and sharp decline are short-term negatives. Note that failed breakouts are a challenge when the bigger trend is up and the broad market environment remains bullish. This is because the trend and market regime are the dominant forces at work. The failed break is a short-term issue that could be just noise, and there seems to be a bull market in noise since late November.
The indicator window above shows S&P 500 Advance-Decline Percent finishing at -60%, which means 80% of stocks declined and 20% advanced. This is modestly strong downside participation, but short of a one day bearish breadth thrust, which requires 90% decliners. Despite the failed breakout, keep in mind that the long-term trend is up because SPY is well above the rising 200-day SMA and the long-term breadth models remain bullish.
QQQ Feels the Heat
QQQ failed to hold its breakout as it fell 3.1% with broad downside participation. The chart shows QQQ breaking out of a falling wedge on December 23rd, stalling above the breakout zone for several days and then plunging back below the breakout zone. The first indicator window shows Nasdaq 100 Advance-Decline Percent exceeding -80% for the third time since late November. This shows broad participation on the decline. The failed breakout and increase in downside participation indicate that a correction could be starting. I am suggesting correction because the long-term trend remains up, as is the long-term breadth model.
Needless to say, tech ETFs and stocks took it on the chin Wednesday with big declines. Many of these were covered in Wednesday’s commentary. The Software ETF (IGV), Internet ETF (FDN) and Cloud Computing ETF (SKYY) exceeded their December lows. The FinTech ETF (FINX) recorded a 52-week low. The Cybersecurity ETF (CIBR) was not immune either as it fell 3% and closed below the early December closing low.
Even semis were hit as the Semiconductor ETF (SOXX) and Next Gen Connectivity ETF (FIVG) fell sharply, though these two remain well above their December lows. Overall, the pressure is on tech stocks and it may take a few weeks or months for setups to materialize. By setups I am referring to an oversold condition and tradable pattern. Note that the Autonomous EV ETF (DRIV) and Self-Driving EV Tech ETF (IDRV) have channel breakouts working, but they are loaded with tech stocks. EV ETFs were covered on Tuesday.
Bonds, Yields and Gold
Note that I covered the 20+ Yr Treasury Bond ETF (TLT), 10-yr Treasury Yield and Gold SPDR (GLD) on Tuesday. TLT retraced 50% of the August to March decline with a big rising wedge and broke wedge support this week. This move reverses the rising wedge advance, signals a continuation of the Aug-Mar decline and targets a move below the March low.
$TNX formed a large triangle consolidation after a move from .50% to 1.75%. The swing within the triangle reversed with the big surge on Monday and TNX is breaking the upper trendline this week. The breakout ends the consolidation phase, signals a continuation of the prior advance and targets a move towards 2%.
The Gold SPDR (GLD) also formed a big triangle consolidation from March to December and remains within this consolidation. Prior to this triangle, GLD fell from 195 to 158 (19%), which is also when the 10-yr Treasury Yield rose from .50 to 1.75 percent. GLD is negatively correlated to the 10-yr Treasury Yield and the breakout in the 10-yr could weigh on bullion. The swing within the triangle is currently up, but would reverse with a close below 167.
Defensive Groups Leading
So where are the uptrends and new highs? The Consumer Staples SPDR (XLP), Food & Beverage ETF (PBJ), Materials SPDR (XLB) and Energy SPDR (XLE) very close to new highs and leading right now. The Utilities SPDR (XLU) and Real Estate SPDR (XLRE) are fairly close to 52-week highs, but these bond proxies were hit the last three days by rising yields. The chart below shows the Consumer Staples SPDR (XLP) with an 11% surge since early December. The trend is up and the new high is bullish, but XLP is quite extended short-term and I do not see a setup. The same with PBJ.
Here are some ETFs in uptrends and leading since December: XLP, XLU, PHO, PBJ, IHF, XLRE, REZ, XLV, XLB, ITB, IFRA, KRE, KRBN, DBA, DBB, WTI, XLE, XOP, XES, FCG
Materials and Energy Near New Highs
The Materials SPDR (XLB) broke out of a large falling channel in late October with a 14% surge, formed a triangle consolidation and broke out of the triangle in late December. XLB hit a new closing high on Tuesday and an intraday high on Wednesday. It is perhaps short-term extended after a 6% advance since December 20th, but the overall trend is up. I do not see a setup on this chart right now. Just an uptrend and a leader.
The Energy SPDR (XLE) hit a new closing high on Tuesday and finished unchanged on Wednesday. Thus, XLE held up relatively well. Overall, XLE hit a new high in mid November, corrected with a falling channel that retraced 50% of the prior advance and broke out with a big move on Monday. Note that I covered energy-related ETFs and the Regional Bank ETF on Tuesday.
Uptrends without Setups
The Home Construction ETF (ITB) surged back to its mid December high in late December and then fell back the last three days. I am not going to draw a possible double top because I am not a top picker and the long-term trend is up. The triangle breakout in early November is the dominant chart feature here. There is no setup at this point.
The Global Carbon ETF (KRBN) is very close to its 8-Dec high after a 12% advance the last eight days. The ETF closed also up on Wednesday and showed relative strength. The last setup was the small falling wedge. Note that the Momentum Composite did not dip to -3 last year and did not provide a oversold setup. The deepest dip was -2 in mid October, which makes it the strongest ETF of 2021.
The DB Agriculture ETF (DBA) did not move much the last two weeks, but remains in an uptrend overall. The last oversold condition and pattern setup occurred in September (falling wedge). DBA broke out to new highs in November and then consolidated into December with a triangle/wedge thingy. There is a breakout working here as well.
Healthcare ETFs Fall Back Too
The Healthcare SPDR (XLV) fell back rather hard the last four days, but remains in an uptrend overall. The triangle breakout in mid December is the dominant chart feature here. XLV was up some 9% in December and entitled to a rest. There is not setup on this chart right now and the breakout zone around 135 is the first support area to watch.
The Medical Devices ETF (IHI) broke out of a triangle consolidation on December 22nd and plunged back below the breakout this week. As with SPY and QQQ, the breakout failed, but the long-term trend remains up. Truth-be-told, dealing with failed breakouts is quite the challenge when the bigger trend is up and we are still in a bull market. Why? Because the bigger trend is still the dominant force at work. As shown on the PBJ chart at the beginning, one trader’s failure is another one’s oversold condition. IHI has yet to become oversold and I do not see a setup right now. The failed breakout shows that IHI is not immune to broad market weakness.
The Momentum Composite aggregates signals in five momentum indicators. RSI(10) is oversold below 30 and overbought above 70. 20-day StochClose is oversold below 5 and overbought above 95. CCI Close (20) is oversold below -200 and overbought above +200. %B (20,2) is oversold below 0 and overbought above 1. Normalized ROC (10) is oversold below -3 and overbought above +3. Normalized ROC is the 10-day absolute price change divided by ATR(10). -3 means three of the five indicators are oversold and +3 means three of the five are overbought.
The Momentum Composite and StochClose are part of the TIP Indicator Edge Plugin for StockCharts ACP. Click here for more details.
Metals ETFs are Mixed
The Metals & Mining SPDR (XME) has a long-term consolidation pattern at work (Ascending Triangle), but the ETF is near resistance and short-term extended after a 12% advance since December 15th. This puts the ETF in no-man’s land and there is no setup on the chart. Note that XME reversed the swing within the triangle with a breakout on December 21st for the early signal.
The Copper ETF (CPER) is looking shaky for two reasons. First, the ETF broke out in October, but did not exceed the May high and ultimately formed a lower high. Second, the ETF broke out of the smaller wedge, but has yet to follow through. Long-term, CPER has gone nowhere since summer and the six month trend is not up. I would be careful here and re-evaluate the wedge breakout on a close below Monday’s low.
The DB Base Metals ETF (DBB) is equal parts copper, zinc and aluminum. The latter two are stronger than copper with steady advances since early November and this is why the DBB chart is stronger than CPER. DBB sports an uptrend overall with a new high in October and support zone around 20.5 (green). The short-term breakouts in December are holding for now as well. Note that you can easily chart zinc and aluminum in TradingView. Start typing zinc or aluminum on the chart and the symbol options will appear.
URA Hits Potential Reversal Zone
The Uranium ETF (URA) is at an interesting juncture as it firms in the 50-67 percent retracement zone. This is one of these charts where I could make a bullish or bearish argument. I will err with the bulls because the long-term trend is still up and the ETF hit a new high in November. The ETF fell some 27% from mid November to mid December and then stalled. The blue lines mark a pennant, which is a short-term bearish continuation pattern and a break below the lower line would argue for further weakness. On the bullish side, A 50-67 precent retracement is normal after a big advance (84%). The ETF is firming near prior resistance and the Sep-Oct lows. URA surged the last three days and closed slightly higher on Wednesday. A breakout at 26 would be bullish.