Mkt/ETF Commentary – Risk-Off ETFs and Uptrends, Market Laggards Get Biggest Bounces, Commodity-Related ETFs Continue to Lead (Premium)

February is the month of the big bounce. As is normal after a big decline, names that led the way lower and fell the most are getting the biggest bounces. Most of the ETFs with the biggest bounces were in downtrends already and these are still considered oversold bounces within downtrends. Three tech-related ETFs held up better than the rest of the group and these also got nice bounces – and they are covered towards the end.

We continue to see uptrends and stronger charts in the risk-off end of the market and in the commodity related ETFs. Value and low volatility are in uptrends, while growth and high beta are in downtrends. XLF, XLP, XLE and XLU are in uptrends, while XLK, XLY and XLI are in downtrends (based on the Trend Composite). Base Metals and Agriculture hit fresh new highs, and oil is still close to a new high. It is a market favoring hard assets right now.

The image below comes from the ETF Trend Signal and Ranking Table. The first sort is by uptrend and the second sort is by name (with sort prefix). This gives us a top-down look at the leading uptrends. Only four of the factor ETFs are in uptrends and only four sector SPDRs are in uptrends. The industry group ETFs show uptrends in ETFs related to finance, staples, energy and materials.

Composite Breadth Model Remains Bullish

The Composite Breadth Model 2.0 went through a whipsaw in late January by turning bearish on January 26th and bullish on February 2nd. The model also experienced the largest drawdown (10.10%) since 2016 in January. Note that I updated the Composite Breadth Model (CBM) page and explained the rationale for widening the signal thresholds in late January (here). At this point, the S&P 500 Trend and Thrust Models are bullish and the 5-day is above the 200-day for the S&P 500. The S&P 1500 Trend and Thrust Models are bearish. This puts the CBM at +1. Large-caps still have the edge over mid and small-caps.

SPY Surges to Key Retracement

Models and indicators are not always on the same page. Even though the S&P 500 is bullish in the CBM above, the Trend Composite is bearish for SPY. SPY fell some 12.4% from high to low and the Trend Composite turned bearish on January 24th. So SPY is at odds with the model and the 5-day SMA for SPY is above the 200-day SMA. Note that the Model would be bearish if I used the Trend Composite instead of the 5/200 cross. Yep, you know what could be coming. Should I use the Trend Composite instead of the 5/200 cross in the model? The Trend Composite signals lag a little more and produce fewer whipsaws. I will think about this over the weekend.

On the SPY chart above, the ETF surged around 6% over the last 12 days and retraced around 2/3 (67%) of the prior decline. SPY gapped up on Wednesday, held this gap and closed strong. The short-term trend is up, but I am concerned that this is a counter-trend bounce within a bigger downtrend. Counter-trend bounces typically retrace 50-67 percent of the prior decline and return to broken support, as well as the underside of the 200-day. SPY is above the support break and 200-day though. At this point, last week’s low holds the key. A break would reverse the short-term bounce and argue for a continuation of the January decline.

QQQ also got a bounce and is currently up around 10% from the late January low. The harder they fell in December-January, the bigger they bounced. For example, the Nasdaq 100 Next Gen ETF (QQQJ) is up over 11%. We cannot always draw a picture-perfect flag, but the essence of a flag is there for the bounce in QQQ (blue lines). Flags are short-term continuation patterns that are dependent on the direction of the prior move for the trading bias. The prior move was down (January) so this makes it a bearish flag. As with SPY, the short-term swing is up as long as last week’s low holds. A break would reverse this upswing and signal a continuation of the January decline.

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

High-Beta versus Hard Assets

Despite some big bounces, many of the tech and high-beta ETFs remain in downtrends and are still well below their January highs. The real leaders are the ones that are hitting 52-week highs, are close to 52-week highs or broke above their January highs. The chart below shows QQQJ with an 11.43% surge the last nine days, but the ETF is still below its December lows and in a downtrend overall. Maybe this is start the of an uptrend, but I am still in the “prove it” camp and need to see more.

In contrast to QQQJ (high-beta), the lowly Steel ETF (SLX) is breaking above its January high and attempting a real trend reversal. The Trend Composite is still at -5, but we can see a lot of price support in the 50 area and a higher high with a break above the January high. Classical chartists would see a Double Bottom and confirming breakout. Hard assets are still stronger than softies.

Speaking of hard assets, the Metals & Mining SPDR (XME) surged off support and is challenging the high end of its eight month range. The red arrows show when XME is oversold and the green arrows show when StochRSI surges above .80. There is no trend on this chart, but oversold conditions near support provide the setup and the StochRSI pop above .80 provides the short-term bullish catalyst. Note that XME is 40.4% steel and 14.4% aluminum. The DJ US Aluminum Index ($DJUSAL) and the Aluminum ETF (JJU) are hitting new highs.

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

Base Metals Lead as Copper ETFs Surge

Commodities continue to be the true leaders right now. The chart below shows the DB Base Metals ETF (DBB) surging some 2.8% on Wednesday. The trend is up and strong with a fresh new high. My only concern is short-term because the Momentum Composite hit 4 and the surge is accelerating as it hits a new high. Accelerations on a breakout or off a support level are bullish, but accelerations after an advance can signal a blow-off top and lead to a consolidation or pullback.

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 next chart shows the Copper ETF (CPER) surging 3.6% on Wednesday and clearing its January high. CPER is up 5.6% year-to-date and QQQJ is down 8.4% this year. The green dashed lines on the price chart show a choppy rising channel with higher highs and higher lows (uptrend). The Trend Composite has been bullish since December 16th and the wedge breakout on December 27th ultimately held.

The Copper Miners ETF (COPX) has been chopping its way higher since the first higher high in October. The green channel shows a longer uptrend, but the first higher high was in October. The Trend Composite turned bullish on January 11th because of the choppy price action. Nevertheless, there is an uptrend on the price chart and in the Trend Composite now. The ETF held its early January lows after the deep dip to 36 in late February and surged to affirm support at this level.

Gold Maintains Choppy Uptrend

Since we are on the metals, I will cover the Gold SPDR (GLD) and Silver ETF (SLV) now. GLD is also in a choppy uptrend with a higher high in November and higher low in December. The bounce off the December low is also choppy as the ETF fell 3% in 3 days to become oversold. This gave way to a 3.4% bounce the last eight days. There is quite a bit of support in the 166-168 area and a close below 166 would argue for a re-evaluation of the current uptrend.  

DB Agriculture ETF Leads with Surge to New Highs

The DB Agriculture ETF (DBA) is also at a new high and surging with a 1.7% gain on Wednesday. DBA is up 4.9% here in February with six of its components hitting new highs: coffee, corn, soybeans, cocoa, cotton and cattle (components here). There is no setup on this chart, just a strong and leading uptrend. As with DBB, I get concerned when prices accelerate after they are already up. I am not concerned with a major top, but the odds of a correction or pullback are increasing.

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.

Oil Takes a Breather after Big Move

Oil is the lagging commodity this week because it fell 2.87%. This is not a big deal because West Texas Intermediate ($WTIC) was up some 40% since early December. We did not see a sharp acceleration higher in February, but oil was quite extended and ripe for a corrective period. Timing corrections within uptrends is difficult because the bigger uptrend is the dominant force at work. As with DBB and DBA, I do not see a setup, just a strong and leading uptrend.

Energy ETFs Remain Leaders

The Energy SPDR (XLE) is in the same boat as DBE and West Texas Intermediate: uptrend and short-term extended. XLE is up some 34% in 33 days, around 1% per day on average. The Natural Gas ETF (FCG) and Oil & Gas Exploration & Production ETF (XOP) are not quite as extended or at strong as XLE, but they have similar patterns at work with the early January breakouts and extensions higher. XLE is the most extended and the most ripe for a consolidation or corrective period.

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

Finance-Related ETFs Extend Uptrends

The Finance SPDR (XLF) and Regional Bank ETF (KRE) also participated in the February bounce. The first chart shows XLF in a choppy uptrend and the Trend Composite remaining bullish the last 12+ months. XLF fell to support in late January, held support and then bounced back towards its mid January high. The December-January lows mark key support in the 37-38 area.

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.

Healthcare Providers ETF Signals as Healthcare SPDR Bounces

The Trend Composite triggered bullish for the Healthcare Providers ETF (IHF) on Wednesday with a move to +1. The indicator has been whipsawing since October because of the big swings. The green dashed lines show an uptrend with higher highs and higher lows. The red arrows show when the Momentum Composite was oversold (-3 or lower) and the green arrows show when StochRSI surges above .80 (short-term bullish catalyst). IHF clearly reversed its downswing with the February surge and the choppy uptrend is continuing.

The Trend Composite is negative for the Healthcare SPDR (XLV), but the ETF did hit a new high in January and held support from the October low. The swing was clearly down in January, but the ETF firmed for a few days and broke short-term resistance on January 28th. The Momentum Composite was also oversold for a few days and StochRSI also popped above .80 on the 28th. Thus, we have a short-term reversal off support.

IFRA Reverses Downswing within Bigger Uptrend

Now we get to ETFs that are in trading ranges or choppy uptrends. They are all below their May high and have pretty much gone nowhere the last eight months. They are simply swinging from support zones to resistance zones. The first chart shows the Infrastructure ETF (IFRA) with higher highs and higher lows the last few months (green channel). The ETF fell hard in January, found support above the September low and turned up in February. The red arrows show when the Momentum Composite was oversold and the green arrows show when StochRSI moved above .80 (after becoming oversold). Not all signals work (surprise, surprise). The current signal triggered on January 31st.

Bouncing off Support Zones (XLI, XLB, ITB)

Next we have the choppy trading ranges or slight uptrends and short-term reversals in February. I am not going to cover the Industrials SPDR (XLI) because I think the Infrastructure ETF (IFRA) captures the sector better. XME was covered above. The chart below shows the Materials SPDR (XLB) with a choppy uptrend and the Trend Composite bearish. Sometimes the swings get big enough to trigger indicators, even though there is still some sort of uptrend visible on the price chart (see IHF too). XLB hit a new high in early January and held just above the September low in late January. The Momentum Composite became oversold and StochRSI popped above .80 on January 31st. With the dip the prior week and bounce this week, XLB established a support level to watch going forward. A close below 82 would negate this reversal.

The Home Construction ETF (ITB) sports a similar chart, but the February bounce was not as strong because ITB never cleared the late January high (red line). A setup is still in the making as the Momentum Composite became oversold in January and StochRSI popped above .80 on January 31st. Failure to hold this week’s low would negate the setup. A break above short-term resistance would further the short-term reversal.  

Tech ETFs that Held up the Best (SOXX, IGN, CIBR)

The Semiconductor ETF (SOXX), Networking ETF (IGN) and Cybersecurity ETF (CIBR) held up the best among the tech-related ETFs. SOXX and IGN held their October lows and CIBR held well above its May low. Most of the other tech-related ETFs broke their May lows. Also note that SOXX and IGN hit new highs in late December, which is not that long ago. CIBR hit a new high in mid November.  These three were covered in the weekend video around the 40 minute mark.

The first chart shows SOXX falling some 20% and retracing 2/3 of the advance from May to late December. There is also a big support zone from the summer-fall lows (green shading). SOXX became oversold in the second half of January and bounced off this zone as StochRSI popped above .80 on January 31st. The ETF is now up around 13% the last nine days. I don’t think I would chase it at this stage because price is near broken resistance and in the 50-67% retracement zone. This area could mark some short-term resistance and the ETF is short-term extended.

The next chart shows IGN hitting the Sep-Oct lows and bouncing in February. The bounce is not as strong as the SOXX bounce, but we are still seeing a StochRSI pop after becoming oversold. The green line marks last week’s low and a close below this level would argue for a re-evaluation.

The next chart shows the Cybersecurity ETF (CIBR) retracing around 2/3 of the May-November advance with the decline into late January. Everything was oversold in late January and there were some pretty strong bounces. The trend is still down because the Trend Composite is negative and CIBR sports lower lows and lower highs since November. Even so, the ETF broke short-term resistance with a surge on January 31st and followed through with further gains this week. As with SOXX, I do not have a need to chase after a double digit surge in nine days and am perfectly content to wait for the next setup. Wait for your pitch!

IBB Gets Oversold Bounce within Downtrend

The Biotech ETF (IBB) was also featured in the weekend video (43:30 mark). The ETF is in a downtrend overall, but became quite oversold in late January. IBB bounced on the 28th, 31st and 1st. The ETF edged lower the next three days and then popped again this week. This is really some short-term stuff, but the short-term swing is up and IBB is recouping some of the January losses.

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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