Complimentary Articles and Analysis
Dozens of high flying stocks and ETFs are down double digits from their February highs, but chartists should put these declines into perspective when analyzing
As its name suggests, multiple timeframe analysis looks at two or more timeframes to find a setup. Typically, the longer timeframe is used to define the long-term trend and set the trading bias. The shorter timeframe is then used to find setups in harmony
Two items are dominating the news right now: the rise in interest rates and decline in tech stocks. Are rising rates really an issue for tech stocks? The charts suggest that the evidence is mixed, at best. In fact, it is not very hard to find periods when tech stocks rose along with sharp rises in the 10-year Treasury yield.
With a pullback led by QQQ and the high flyers, several ETFs have become short-term oversold in a longer term uptrend. In Dow Theory terms, the primary trend for these ETFs is up and the secondary trend is down. A secondary downtrend within a primary uptrend is considered a correction within that uptrend and a possible opportunity.
The Nasdaq 100 has been on a tear the last few months with a move to new highs, but a medium-term breadth indicator is not keeping pace here in February. This indicator is simply flashing the yellow caution sign right now and we have yet to see an actual signal that would point to a correction. Here’s what to look for.
Not all ETFs are created equal and the name does not always tell the entire story. One would think that the Industrials SPDR (XLI) and the Industrials iShares (IYJ) are similar in make up and performance. This is not the case because one has a clear edge over the other.
The seasonal patterns over the next two months are not very strong, but price action is strong with the S&P 500 hitting a new high. Price action is more important than the seasonal pattern because profits and losses are driven by price changes, not seasonal tendencies. Seasonality becomes a force when it aligns with price action. Let’s investigate.
Last weekend’s post showed the Semiconductor ETF (SOXX) with a 10 day overbought streak and several ETFs with even bigger overbought streaks. These streaks came to an end this week as SOXX fell 6.21%, its biggest weekly decline since mid March. As measured by Normalized ROC, this is an outsized decline that argues for at least a corrective period over the next few weeks.
The Semiconductor ETF (SOXX) and several other ETFs are on a serious roll in 2021. For the fourth time since 2009, 14-day RSI was above 70 for ten or more days. This is an exceptional streak, but SOXX is not alone and there are even longer streaks. The following list shows some ETFs and the number of days RSI has been above 70: ROBO (39), DRIV (25), ARKQ (13), EWT (13), MOO (12), XRT (11), SOXX (10), YOLO (10). Note that these numbers are based on Thursday’s close.
Visual chart analysis is prone to subjectivity and biases. While we cannot completely remove subjectivity, we can approach chart analysis in a systematic fashion and increase objectivity. This commentary will show an example using the Home Construction ETF (ITB) because the ETF has traded flat since mid October. Is this a top or merely a correction?