It as been 18 days since Putin invaded Ukraine and SPY is up 5.32% since the close on Wednesday, February 23rd. QQQ is up 6.3% and IWM is 6.5%. The 20+ Yr Treasury Bond ETF (TLT), an alleged safe-haven, is down 4.6%. While the gains in stocks are eye-catching, last week’s big bounces did not reverse the underlying trend. A 5 day bounce fits more in mean-reversion timeframe, not trend-reversing timeframe. Thus, SPY and QQQ are short-term overbought and in long-term downtrends, which puts them in a rather precarious spot. Follow through is needed for these oversold bounces to turn into trend reversing events and we have yet to see such follow through. The PerfChart below shows the 18-day ROC for SPY, QQQ, IWM and eight other ETFs.
We are in the fog of war and what you know/think is probably wrong. --Mike McKee (Bloomberg)
Bullish Wedges or Bull Traps?
The chart below shows SPY with a promising pattern: a falling wedge and a falling wedge breakout. Yes, I can hear the siren song from “O Brother, Where Art Thou” right now. There are, however, a few problems with this setup. First, the Market Regime remains bearish and we have yet to see a bullish breadth thrust. Second, the Trend Composite is negative and the 5-day SMA is below the 200-day SMA. Third, we have yet to see a 20-day price thrust. 5 days is mean-reversion timeframe and 20 days is the trend-reversing timeframe (more on this below chart).
The bottom indicator is the 20-day point change divided by the prior day’s 20-day ATR. This is the point move in ATR terms. A three ATR surge (green bars) is a bullish price thrust and a three ATR decline is a bearish price thrust (red bars). As with most indicators, it should be used in conjunction with other analysis techniques or indicators. There were bearish price thrusts in late January and early March. These have yet to be countered with a bullish thrust.
The falling wedge looks promising, but the weight of the evidence is bearish for the broader market and SPY itself. As such, I am not biting on the breakout. Also note that SPY is short-term overbought after a 6.6% surge the last five days. This is not the environment to chase a suspect breakout.
The next chart shows QQQ with similar characteristics. Note that I widened the price thrust thresholds in the bottom indicator to +4 and -4 because QQQ is more volatile than SPY.
Normalized ROC, which is the point change in ATR terms,
is part of the TIP Indicator Edge Plugin for StockCharts ACP.
Current Themes Working
There are a number of themes working right now and it is good to keep these in mind going forward. There will be zigs, zags and volatility along the way, but these themes could extend for several months, if not years.
- Inflation, rising interest rates, falling bond prices
- Material world favoring commodities and commodity producers
- Accelerated move to clean energy
- Increase in US energy production and exports (Oil, LNG)
- Increase in defense spending in US and Europe
- Cybersecurity as part of defense for governments and companies
- De-globalization as countries seek to source goods closer to home
Agribusiness ETF Surges as DB Agriculture ETF Breaks Out
The Agribusiness ETF (MOO) caught fire with a massive surge the last five days. The ETF was already in an uptrend, but this uptrend was very choppy and the Trend Composite whipsawed (turned negative twice). This sometimes happens during choppy uptrends. MOO is benefiting from strength in agriculture prices, which points to a supply-demand imbalance that favors demand.
The DB Agriculture ETF (DBA) has been in a strong uptrend for well over a year and the ETF recently pulled back with a falling wedge. This is a short-term bullish continuation pattern akin to a falling flag. It represents a short correction or pullback within the uptrend. Monday’s gap and breakout reversed the fall and signalled a continuation higher.
Note that the Coffee ETF (JO) fell back to its rising 200-day SMA. The Corn ETF (CORN) and Soybean ETF (SOYB) formed pennants after big surges and the Wheat ETF (WEAT) firmed after retracing 50% of the February-March advance. These four are part of DBA. The Sugar ETF (CANE) is also participating with a wedge breakout in early March, a throwback last week and a bounce the last three days.
The Trend Composite aggregates trend signals in five trend-following indicators: 5-day ROC of 125-day SMA, Bollinger Bands (125,1), Keltner Channels (125,2,125), CCI (125) based on Closing Prices and StochClose (125, 5). You can learn more about the Trend Composite here.
The Trend Composite is part of the TIP Indicator Edge Plugin for StockCharts ACP
Utilities Carry Infrastructure to New High
The Infrastructure ETF (IFRA) is not exactly a commodity play, but it is benefiting from strength in utilities (39.9%), materials (20.1%) and energy (7.35%). The percentage weighting is shown next to each group and together they account for some 67% of the ETF. The weighting of utilities is especially strong and this accounts for much of the ETF’s strength because XLU is near a new high.
The next chart shows XLU surging to a new high and then consolidating with a pennant, which is a short-term bullish continuation pattern. Despite this bullish pattern, note that XLU is quite a choppy beast and I find it better to play pullbacks and oversold conditions. Notice that the August pennant did not work.
You can learn more about exit strategies in this post,
which includes a video and charting options for everyone.
Steel and Copper Miners Extend Uptrends with New Highs
The Metals & Mining SPDR (XME) started leading in mid February as it broke out of a long consolidation and extended its lead into early March with another surge. The ETF fell back with a flag and broke out of this flag with a surge the last five days. This move from 40 to 60 is almost parabolic. Nevertheless, it fits with the theme favoring commodities and commodity producers. Note that XME is 38.8% steel and most of these steel stocks are US centric. The Steel ETF (SLX) is also steel, but 25% of its holdings are from Brazil and 15.3% from Australia.
The Copper Miners ETF (COPX) has yet to exceed its May 2021 intraday high, but it did record a new closing high on Monday. As with the underlying metal, COPX remains in a choppy uptrend since the December breakout. Notice that this breakout signal front-ran the Trend Composite signal, which happens sometimes because charts provide more perspective. As with most commodity-related ETFs, the swings in 2022 are big and volatility is high right now.
Energy, Metals and Copper ETFs Get Oversold Bounces
Many commodity related ETFs surged with parabolic moves from late February to early March, fell back sharply into mid March and bounced the last few days. The long-term trends are up for most commodity-related ETFs and this sharp pop-drop is just noise within that uptrend.
The DB Energy ETF (DBE) has been in a long-term uptrend for well over a year and remains in an uptrend. The ETF surged above the upper line of the rising channel and then fell back to this line. Note that this line is simply parallel to the lower line and the return to this upper line is more coincidence than solid technical analysis. The solid technical analysis is that DBE went parabolic and then retraced half of the prior advance. Even though the Momentum Composite did not become oversold, the ETF was oversold after an 18% decline in five days. The combination of oversold conditions and a retracement zone increased the odds for a bounce, which we are getting now.
The next chart shows the DB Base Metals ETF (DBB) with similar characteristics. Zinc (ZINC!) and Aluminum (ALI!) have charts similar to DBB with uptrends, big surges to new highs in early March, hard throwbacks and bounces the last few days. The symbols shown are from TradingView (affiliate link here).
The Copper ETF (CPER) remains in a very choppy uptrend. There was a hard throwback after the surge to new highs in early March and the ETF bounced with the rest of the commodity group the last few days. There is no setup, just a choppy uptrend.
Materials Sector Gets Breakout within Choppy Uptrend
The Materials SPDR (XLB) is 66% chemicals, 17% metals/mining and 12% containers/packaging. Freeport-McMoRan (FCX), a mining and energy company, is the second biggest holding at 7.23%. Chemicals fit as commodities and many are tied to petroleum. Note that the EW Materials ETF (RTM) hit a new closing high on Monday and is leading. XLB is not as strong as its equal-weight brother, but the price chart sports a choppy uptrend since June and a wedge breakout the last few days.
Energy ETFs with Flag/Wedge Breakouts after New Highs
The energy-related ETFs fell back along with oil and then bounced with oil the last few days. The Energy SPDR (XLE), Oil & Gas Equipment & Services ETF (XES), Oil & Gas Exploration & Production ETF (XOP) and Natural Gas ETF (FCG) all hit new highs and then pulled back with flags or small wedges. These pullbacks were not enough to trigger oversold readings, but the flag/wedge patterns are short-term bullish continuation patterns. The breakouts end these small corrections and signal a continuation of the bigger uptrend. The only concern here is above average volatility and overbought conditions because these ETFs are up between 40 and 55 percent the last three months.
Gold and Silver Pullback after Big Surges
The Gold SPDR (GLD) did the pop and drop with the other commodities, which means it is acting like a commodity. GLD is in an uptrend and broke out with a big surge in February. The ETF fell back hard into mid March and then firmed near the prior breakout zone (blue shading). The broken resistance level turns support and the decline also retraced 50-67 percent of the prior surge. Price action is volatile, but this is a potential reversal zone and GLD was short-term oversold after the plunge from 192 to 177.
The Silver ETF (SLV) is not as strong as gold, but the trend is up with the Trend Composite positive and a Double Bottom breakout working. After a 22% surge, the ETF fell back by retracing 50% and returning to the January high, which is broken resistance turned support. Thus, SLV is also in a potential reversal zone and starting to firm.
Uranium Holds Breakout as REMX Goes for Breakout
The Uranium ETF (URA) is an example of using the price chart for perspective and front running a Trend Composite signal. URA fell some 38% from a new high, but held just above the August low as a falling channel formed. Thus, the price chart suggests that this is a deep correction within a bigger uptrend. URA broke out of the channel with a surge in late February and this breakout is holding.
The Strategic Metals ETF (REMX) also hit a new high and then fell some 23%. The Trend Composite turned negative, but the ETF found support in the 95-100 area in late January and mid March. The decline into mid March looks like a falling channel of sorts and this channel retraced half of the March-December advance. REMX surged over 10% the last four days and is on the verge of a breakout.
Defense ETFs with Uptrend and flag/wedge Breakouts
The Aerospace & Defense ETFs (ITA, PPA, XAR) sport similar charts. Declines from June to December, higher lows in 2022 and breakouts in late February. All three fell back after the breakouts with falling flag/wedge patterns and broke out of these patterns with surges the last few days. Thus, we have long-term breakouts in February and short-term breakouts late last week. Even though these ETFs are highly correlated, PPA is the strongest of the three because it is the only one to hit a new high with the late February breakout.
Healthcare SPDR Breaks Out with Trend Signal
The Healthcare SPDR (XLV) is taking the short-term lead with a break above the February high and a Trend Composite signal two days ago. XLV held its September-October low, which means it held up better than the dozens of ETFs that broke these lows. After hitting a 52-week high, XLV fell back with a falling wedged and the Trend Composite turned negative. We are seeing a lot of these with the deep pullbacks that fail to break prior lows and turn the Trend Composite negative. A normal corrective wedge would have held well above the Sep-Oct lows. In any case, the support zone around 125 held and XLV broke out with a surge the last two weeks. The breakout zone around 133-134 turns first support to watch on a throwback (blue zone).
Cybersecurity ETF Gets Flag Breakout
Cybersecurity is all over the news on Monday-Tuesday, but the cyber threats are nothing new and they will continue. The Cybersecurity ETF (CIBR) is holding up the best of the tech-related ETFs because its closing low is in late January and the ETF formed higher (closing) lows in February and March. CIBR also broke out in early March, fell back with an out-of-control flag and broke flag resistance with a surge the last four days. Out of control (volatility) is the norm these days. The flag breakout is bullish. Longer-term, CIBR is breaking out of a falling channel that retraced around 67% of the March-November advance.
Clean Energy ETFs Reverse Downswings within Corrections
There is no real change in the clean-energy ETFs: My focus has been on the Clean Energy ETF (PBW), but they are all highly correlated and chartists can also consider ACES or ICLN. Check the holdings to learn the differences. The charts show massive advances from March 2020 to February 2021 and a zigzag decline into January 2022 that formed a big falling channel. This channel looks like a big correction and PBW reversed the downswing within this channel with a breakout the last few weeks. This is the first step towards a bigger trend reversal. The next steps are the Trend Composite turning positive and a channel breakout.
You can learn more about my chart strategy in this article covering the different timeframes, chart settings, StochClose, RSI and StochRSI.