Mkt/ETF Commentary – CBM Flips, Commodity Related ETFs Lead, Finance and Staples Related ETFs Hold Up, Tech Turns Volatile (Premium)

The stock market is as divided as ever with the pockets of weakness at the risk-on end. Risk-off ETFs and commodity-related ETFs are performing the best right now. Finance-related ETFs are also holding their own as the 10-yr Treasury Yield exceeds 2%. There are some uptrends out there and this report focuses on ETFs within uptrends. This is why tech-related ETFs, high-beta ETFs, clean-energy ETFs and others are not covered. The odds of generating a loss are higher when the trend is down. Conversely, the odds of generating a profit are higher when the trend is up and the ETF is leading.

Commodities, Finance and Defense Dominate

The table below comes from the ETF Trend Signal and Ranking Table. I entered allw in the search box to focus on the 50 ETFs in the All Weather List, which is a highly curated list. The ETFs at the top of this table tell us as much as the ETFs that are absent from the top. There are no ETFs related to Tech or Consumer Discretionary. The list is dominated by ETFs related to commodities (steel, oil, agriculture, metals), finance (XLF, KIE, KRE) and defensive ETFs (PBJ, DVY).

Composite Breadth Model Flips to Bearish

As expected the Composite Breadth Model flipped to bearish as the 5-day SMA for the S&P 500 crossed back below the 200-day SMA. This SMA cross is one of the five inputs for the model. The other four inputs are split with the S&P 500 Trend and Thrust Models bullish, while the S&P 1500 Trend and Thrust Models are bearish. In short, it is a very divided market with more pockets of weakness than strength.

The chart below shows the percentage of stocks above the 200-day SMA for the S&P 500, S&P MidCap 400, S&P SmallCap 600 and Nasdaq 100. All are below 50% and only 38% of Nasdaq 100 stocks are above their 200-day SMAs. This means more than 50% of stocks are in long-term downtrends.

As seen with the S&P 500 above, the 200-day SMA can be quite the battle zone as buyers and sellers slug it out for control of the trend. This is what creates a choppy trading environment and this churning is also part of a corrective process. SPX was up some 45% from late October to late December and is entitled to a correction or decline. Corrections can be price-based, time-based or a little of both. The S&P 500 traded flat in September-October 2020 for a time-based correction (note that the Composite Breadth Model remained bullish during this period). Now, however, there are more pockets of weakness so perhaps we will have more of a price-based correction or decline.

As noted before, correlations rise when the broader market corrects or declines. The broad market trend is the gravitational pull for sectors, industry groups and stocks. Some may escape this pull, but most will be affected and it is hard to pick winners in such an environment.


SPY is all over the place, and yet nowhere at the same time. The ETF is below its early September high and has basically gone nowhere for over five months. Short-term, SPY fell some 12% in January, rebounded with a sharp advance that looks like a flag and broke flag support last Friday. Of course, SPY immediately rebounded with a small gap on Tuesday and modest gain on Wednesday. Short-term price action is messy, but the setup still looks bearish. Long-term price action is bearish as the 12.4% decline is deemed an impulse move lower and the Trend Composite turned bearish in late January.

QQQ is in the same boat as SPY. The ETF broke down in January and the Trend Composite turned negative. QQQ got an oversold bounce that retraced around half of the decline with a sloppy flag. I cannot match the lines with the exact highs and lows, but this oversold bounce captures the essence of a rising flag. QQQ broke short-term support last Friday and then rebounded Monday-Tuesday. Short-term price action is messy, but the setup still looks bearish. The long-term trend is down.

Small-caps are slightly stronger than large-caps the last two weeks. Notice that the S&P SmallCap 600 SPDR (IJR) closed above last week’s closing high. SPY, in contrast, remains well below last week’s closing high. IJR and small-caps, however, are still weaker than SPY long-term. My concern here is that a small rising wedge is forming and this wedge retraced half of the prior decline. This is a short-term bearish continuation pattern and IJR is near a potential reversal zone (based on the retracement). A break below the Friday-Monday low would reverse this wedge and signal a continuation lower. IWM and IWC have similar wedges in play.

The Trend Composite is part of the
TIP Indicator Edge Plugin for StockCharts ACP

Oil and Energy Continue to Lead

West Texas Intermediate ($WTIC) took a little dip earlier in the week and then rebounded on Thursday (geopolitics). There is no real change short-term or long-term. The long-term trend is up and oil is a leader. The short-term trend is also up, but getting extended after a 40+ percent advance the last 11 weeks.

If you are interested in the Russia/Ukraine situation, Admiral James Stavridis of The Carlyle Group has a pretty good take and I agree. Putin is just sewing confusion and will likely just take some parts of southeastern Ukraine because taking Kiev would get messy. Link to Youtube video.

You can learn more about my chart strategy in this article covering the different timeframes, chart settings, StochClose, RSI and StochRSI.

The Energy SPDR (XLE) remains in a long-term uptrend, but the short-term uptrend is getting extended and there is no setup. XLE advanced some 34% in 33 days and then stalled the last seven days. The ETF is ripe for a pullback or consolidation after this big move, and this could lead to the next bullish setup (pullback and oversold condition within a bigger uptrend). XOP and FCG are in similar situations.

The next chart shows the Oil & Gas Equipment & Services ETF (XES) with a big triangle breakout in the second half of January and an extension higher in February. XES is also a bit extended since mid December (+32%), but the triangle breakout is long-term bullish. The breakout zone around 57-58 turns first support to watch on a pullback.

XME Puts the Pedal to the Metal (plus SLX)

The Metals & Mining SPDR (XME) is on the leaderboard as it finally broke resistance and hit new highs the last four days. It all started with a support test and StochRSI pop above .80 (green arrows). XME is up some 20% in three weeks and short-term extended, but still long-term bullish. There is no short-term setup on the chart, just a market leading breakout and uptrend.

This report focuses mostly on leading ETFs in uptrends, but the Steel ETF (SLX) is related to XME because steel stocks account for 40% of the latter. SLX has a potential double bottom in play with two equal lows in the 50 area and an intermittent high in the 58 area. The ETF is attempting a breakout to confirm the pattern. The Trend Composite remains in downtrend mode though (-5).

If you are wondering what it would take to turn the Trend Composite bullish, the chart below shows SLX with the five indicators. SLX has yet to break above the upper Bollinger Band or the upper Keltner Channel, but is close. StochClose is still below 60, CCI-Close is below 100 and the 5-day Rate-of-Change of the 125-day SMA is negative (falling SMA). Three of the five need to trigger bullish to turn the Trend Composite positive (+1).

Agriculture Related ETFs Hit New Highs  

The DB Agriculture ETF (DBA) and Agribusiness ETF (MOO) remain leaders with new highs over the past week. DBA was a little extended after a 9% advance in seven weeks and fell back a little early this week. It is still short-term extended and there is no setup on the chart. Just a leading uptrend.

MOO hit a new high as it moved to the upper end of a rising channel. I do not consider the upper line as a resistance level. These lines simply connect the lows and the highs to show the steepness of the uptrend. And it ain’t that steep. Nevertheless, MOO is near a new high and there are dozens of other ETFs that would rather be in boring uptrends and near new highs right now. There is no setup here, just a leading uptrend.

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.

Global Carbon ETF Pulls Back after New High

The Global Carbon ETF (KRBN) also sports a rising channel, but this channel is much steeper and the uptrend is much stronger. KRBN never became oversold during this uptrend (Momentum Composite -3 or lower), but did form triangles and wedges along the way, which are short-term bullish continuation patterns. Most recently, the ETF formed a triangle into January and broke out in early February. Even though KRBN fell back into the triangle range, the ETF recorded a new high last week and remains a leader overall. A small falling wedge formed the last few days and a breakout here would keep the bigger triangle breakout alive.

Finance, Banks and Insurance Maintain Uptrends

The Finance SPDR (XLF), Regional Bank ETF (KRE) and Insurance ETF (KIE) are in uptrends of varying degrees. XLF sports the most stable uptrend because the Trend Composite has been positive since August 2020. The rising channel defines a choppy uptrend after the surge into May. This uptrend is indeed choppy, but it is an uptrend that held in January when many others reversed. This means XLF is a market leader the last few months, albeit a boring leader.

The Regional Bank ETF (KRE) took a deeper dip in the summer, but the Trend Composite turned bullish in late September and remained bullish in January. KRE is currently in an uptrend with two pullbacks that retraced around 67% of the prior advance. KRE firmed in the 69-70 area in late January and bounced in February. This affirms support at 69 and is the first level to watch for signs of trouble.

The next chart shows KRE getting a bounce off the 67% retracement zone here in February. The late January lows and lower line of the rising channel mark a support zone in the 68-70 area.

You can learn more about exit strategies in this post,
which includes a video and charting options for everyone.

Staples-Related ETFs with Uptrends

The Food & Beverage ETF (PBJ) remains in a steady uptrend and close to a new high. The Trend Composite has been positive since July 2020 and the January decline held well above the December low (67% retracement). PBJ became oversold as the Momentum Composite dipped to -3 on January 25th and broke short-term resistance on February 2nd. The only concern here is that broad market weakness could weigh on even the defensive groups.

The Consumer Staples SPDR (XLP) uptrend is not quite as steady because it dipped into negative territory twice in 2021. The early February breakout is also not as steady as the ETF dipped back below 76 last week. The overall trend remains up though and a break back above 76 would revive the short-term uptrend.

Residential REIT ETF Attempts to Hold Short-term Breakout

The Residential REIT ETF (REZ) is one of the few ETFs out there with an uptrend and a short-term setup. The Trend Composite has been positive since early September and the ETF hit a new high at the end of December. The pullback into early February retraced around 2/3 of the prior advance, the ETF firmed around 90 and broke out in early February. There was no follow through because REITs overall have not performed well the last two weeks. A small flag like pullback is underway and a breakout would be bullish.

Infrastructure ETF Holds Long-term and Short-term Uptrends

I was concerned with the Infrastructure ETF (IFRA) because it formed a small rising wedge – and I am still concerned because the broader market environment is shaky at best. IFRA is in one of these choppy uptrends and got a bounce off support. This bounce, however, retraced half of the January decline. The rising wedge is typically a bearish continuation pattern and the 50% retracement marks a potential reversal zone. A wedge break here would end the bounce, signal a continuation of the January decline and possibly lead to the Trend Composite turning negative.

Copper Related ETFs Maintain Upswings - Plus DBB

Before looking at the copper ETFs, note that the DB Base Metals ETF (DBB) remains a leader and near a new high, despite a sharp two-day drop last Thursday-Friday. DBB has the same problem as oil: strong and leading uptrend, but short-term extended and there is no setup on the chart.

Note that you can chart copper futures (COPPER1!), aluminum futures (ALI1!) and zinc futures (ZINC1!) on TradingView (affiliate link here). These are symbols for the current contract continuous futures, but you can also chart the individual contracts. Aluminum is at a new high, zinc is close to its October high and copper surged some 6% this month.

The Copper ETF (CPER) continues to trade in an upward trajectory with choppy price action. The last setup was the falling wedge and the last signal was the breakout on December 28th. Price action since the breakout has been extremely choppy, but the breakout ultimately held and the Trend Composite remains bullish (since December 16th). Price chart support is set at 26.

Unsurprisingly, the Copper Miners ETF (COPX) also remains in a choppy uptrend. COPX is stronger than CPER because it exceeded its January high this month. The green dashed lines define the uptrend, but I do not consider the upper line as resistance. Again, the angled of the trendlines define the rate of ascent. Chart support is set at 36.

Gold Challenges November High as Silver Firms

Speaking of choppy uptrends, the Gold SPDR (GLD) remains with a series of higher highs and higher lows since autumn, and the Trend Composite has been positive since early November. GLD caught fire the last three weeks with a 5% surge and is nearing its November high. I do not consider this as resistance because the trend is up and higher highs are expected in an uptrend. The January lows mark support in the 166-167 area.

Last week I showed a Silver ETF (SLV) chart with a possible Double Bottom and a short-term breakout. This week I will show a chart with the five indicators in the Trend Composite. All five are on bearish signals right now. A break above the January high would likely trigger a Bollinger Band breakout and Keltner Channel breakout. The 5-day ROC of the 125-day SMA is at -.02 and it would not take much to turn this indicator positive. Thus, a breakout at 23 would be bullish on the price chart and likely turn the Trend Composite positive.

Big Bounces after Big Declines

There are lots of ETFs that got big oversold bounces within downtrends. Some of these downtrends are already mature, some triggered in December and some in January.  Most of the ARK ETFs turned down in November, the clean energy ETFs turned down in December and several tech-related ETFs turned down in January. Those that were hit the hardest often get the biggest oversold bounces, but they are still oversold bounces within bigger downtrends. The Clean Edge Green Energy ETF (QCLN) is up 16% in three weeks. Prior to this big bounce, it fell 37% in 12 weeks. As the chart below shows, QCLN is all over the place with massive swings. At the very least, there is hardly a consistent and persistent uptrend.

The next chart shows the Software ETF (IGV) with a 26% decline and a two-week 10% bounce. This bounce could continue or it could fail, but IGV is not on my radar because it is not in an uptrend. Furthermore, I have yet to see a bottoming process or some sort of bullish configuration take shape. It may take time. This is the case for most tech-related ETFs. They are not in uptrends.

The Semiconductor ETF (SOXX), Cybersecurity ETF (CIBR) and Networking ETF (IGN) are holding up the best right now, but their uptrends lost the way after the January declines.  The chart below shows the Semiconductor ETF (SOXX) falling to its October low with a sharp decline in January and the Trend Composite turning negative (-1). SOXX got a bounce with the rest of the market and hit resistance near broken support and the 67% retracement. The ETF fell sharply last Thursday-Friday (-6%) and then bounced some 5.5% the last two days. Even though SOXX is holding up better than IGV and other tech-related ETFs, volatility is high and this means risk is above average.  

You can learn more about my chart strategy in this article covering the different timeframes, chart settings, StochClose, RSI and StochRSI.

Thanks for tuning in and have a great day!

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

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