Market and ETF Report – Nowhere to Hide, Short-term Oversold in Bear Market, Oil and Ag Still in Uptrends (Premium)

It was a “sell everything” moment the last four days as stocks, bonds, commodities and non-Dollar currencies declined. The Dollar Bullish ETF (UUP) rose 2.82% the last four days and the Corn ETF (CORN) was up .46%. Those are the only two ETFs in the master list (274 ETFs) that rose. The ARK ETFs led high-beta way lower with declines greater than 15%, energy-related ETFs were hit as the Oil & Gas Equipment & Services ETF (XES) fell 15.7% and the Semiconductor ETF (SOXX) fell 13.7%. Overall, commodities held up relatively well with smaller declines. The DB Energy ETF (DBE) and Wheat ETF (WEAT) were down less than 1%. The Gold SPDR (GLD), DB Agriculture ETF (DBA) and Sugar ETF (CANE) were down less than 2%. These five are featured at the end of this report.

SPY, QQQ, TLT, JNK and SOXX broke their May lows (lower lows to reinforce existing downtrends). Money did NOT move into safe-havens bonds. The commodity ETFs in the bottom half of the chart above are still above their May lows and holding up better. Even so, WEAT, GLD, DBE and CANE fell over the last few weeks and were not immune to the sell-everything market. Bitcoin, not shown, fell 25% in four days and is down 67% since November. As Warren Buffet says: Only when the tide goes out do you discover who’s been swimming naked. Turns out that almost everyone is swimming naked.  

On the lighter side, recent price action reminds me of a cartoon in The Economist from 1997. It is as true today as it was then.

About the ETF Trends, Patterns and Setups Report

This report contains discretionary chart analysis based on my interpretation of the price charts. This is different from the fully systematic approach in the Trend Composite strategy series. In this ETF Trends, Patterns and Setups report, I am looking for leading uptrends and tradable setups within these uptrends. While I use indicators to help define the trend and identify oversold conditions within uptrends, the assessments are mostly based on price action and the price chart (higher highs, higher lows, patterns in play). Sometimes the chart assessment can be at odds with the indicators.

This Week's Commentary Schedule

  • Tuesday – 14 June: Market-ETF Report and Signal-Rank Table Update
  • Wednesday – 15 June: Market-ETF Video and Market Regime Update
  • Thursday – 16 June: Market-ETF Report and Signal-Rank Table Update
  • Saturday – 18 June: ETF Signal and Rank Table

CBM Update

The Composite Breadth Model, the 5/200 cross for the S&P 500 and SPX %Above 200-day SMA say it all: bear market. The chart below shows the Composite Breadth Model turning bearish on April 11th and currently at -5, which means all five inputs are in bear mode. The 5-day SMA is 10% below the 200-day SMA and only 16.50% of stocks are above their 200-day SMAs. Stocks are in a bear market, volatility is high and risk remains above average for stocks. Some commodities tied to the economy are also taking it on the chin (industrial metals and chemicals).  

Baby with the Bath Water

Advance-Decline Percent plunged below -80% for three days straight in the S&P 500, Nasdaq 100 and S&P MidCap 400. This means more than 90% of stocks in each index declined and less than 10% advanced (10% advancers less 90% decliners equals -80%). This is some seriously strong selling pressure that smacks of a washout or selling climax that could lead to a short-term low. August 24th, 2015 was the last time S&P 500 AD Percent ($SPXADP) exceeded -80% three days in a row. This led to a short-term bounce in late August, but there was a test of the August low in late September.

SPY Becomes Seriously Oversold (short-term)


SPY fell 9.8% the last four days and is very oversold short-term. Again, this could lead to an oversold bounce, but bounces are still considered counter-trend moves within a bigger downtrend. This sharp move was a free fall with a 2.4% decline on Thursday, a gap and 2.9% plunge on Friday and a 3.8% loss on Monday. The 9.8% decline is the sharpest 4-day decline since March 23rd, 2020. This thrust lower marked the low of the covid crash. Note, however, that the covid crash started with a 4-day 10.8% decline on February 27th. SPY is now down around 19% from its early April high. A short-term bounce is possible, but the bigger trend is down and we are in a bear market.

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

The Russell 2000 ETF (IWM) was a little stronger on the bounce in late May and early June, but it also succumbed to selling pressure and reversed after retracing half of its prior decline. IWM broke the flag line on Friday with a gap and gapped down again on Monday.

Utilities and Dividend ETF Succumb (XLU, DVY)

The bear market is expanding and taking few prisoners, which is more reminiscent of the 2001-2003 and 2007-2009 bear markets. The Consumer Staples SPDR (XLP) and Food & Beverage ETF (PBJ) were holding up early this year, but broke down in mid May. These two were highlighted last Thursday as they hit resistance from broken support. The Utilities SPDR (XLU) and Select Dividend ETF (DVY) were holding up in May, but got taken down here in June. More sectors and industry groups are joining the bear market.

The Momentum Composite aggregates signals in five momentum-type indicators to identify short-term overbought and oversold conditions. This indicator is part of the TIP Indicator Edge Plugin for StockCharts ACP

Failed Breakouts and Short-term Breakdowns


Much of today’s report covers the failed breakouts and short-term breakdowns in the few stock-related ETFs that were holding up. Recent commentaries were focused on levels that would prove short-term breakouts wrong. We all need a trading plan and we need to trade according to that plan. Follow the process. The the Healthcare SPDR (XLV), Agribusiness ETF (MOO) and Metals & Mining SPDR (XME) were holding up better than the broader market and there were short-term breakouts working in mid May. The bounces into June formed rising flags and these were the bearish alternatives that could prove the mid May breakouts wrong. All three broke flag support and these breaks signal a continuation lower.

ATR Trailing Stop Triggers for Defense ETF


The ATR Trailing Stop was used to define the re-evaluation or “wrong” level for the Aerospace & Defense ETF (ITA) and Aerospace & Defense ETF (PPA). The chart below shows PPA breaking out with a surge in mid May and following through with a seemingly strong move into early June. PPA gave it all back with the decline over the last four days. The ETF gapped below the ATR Trailing Stop on Friday and gapped down again on Monday. This market really is the wild west because volatility remains in the stratosphere.

Materials Follow the Market Lower


The EW Materials ETF (RTM) was in an uptrend and the Materials SPDR (XLB) was holding up better than the broader market because it did not break its February low. Both succumbed to the bear over the last four days and broke down with a vengeance. XLB broke short-term resistance on May 17th and the wedge line on May 27th. There was some follow through into June, but all was wiped out in four days. Ditto for RTM.

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

Industrial Metals Reflect Economic Demand


The DB Base Metals ETF (DBB) and the Copper ETF (CPER) also failed to hold their breakouts and broke down. It is as if everything tied to economic growth was hit hard. Slowing economic growth and/or a recession translate into demand destruction. The chart shows the DB Base Metals ETF (DBB) with a mid May breakout and a bearish flag taking shape. This was the alternative pattern to prove the breakout wrong – and it did. DBB broke short-term support and triggered the ATR Trailing Stop with a close below 22.60 on Thursday. The four day decline was also enough to turn the Trend Composite negative.

The Palladium ETF (PALL) ETF never broke resistance from the May-June highs and fell below its May low. It also triggered the ATR Trailing Stop.

The Platinum ETF (PLTM) was leading the other metals from late April to early June, but fell with the rest of the group and broke rising flag/channel support. This signals a continuation of the March-April decline and argues for new lows.

Gold Breaks Wedge Line

The Gold SPDR (GLD) closed strong on Friday and looked like it might step up as an alternative, but gave it all back on Monday and broke the wedge line. GLD also triggered the ATR Trailing Stop on Monday. A small rising wedge after a sharp decline is typically a bearish continuation pattern. It is the pattern that could prove the mid May breakout wrong. It did and the wedge break signals a continuation of the April-May decline. Even though there is still a lot of support in the 165-170 area from the December-January lows, gold is not acting like a realistic alternative to stocks or a safe-haven trade. A break above 175 would change my view.

Oil Remains Strong, but Energy ETFs Hit


West Texas Intermediate ($WTIC) and the DB Energy ETF (DBE) held up over the last four days and did not succumb to selling pressure. The chart below shows spot crude (top window) extending on the early May breakout and nearing its March high. The bottom window shows DBE extending on its triangle breakout and hitting new highs in June. There are no setups on these charts, just strong and leading uptrends.

Energy sector ETFs are still stock-based ETFs and more vulnerable to a bear market than the actual commodity. They were all hit hard the last three days, but are still holding up better than the broader market in 2022 and over the last several weeks. The first chart shows the Energy SPDR (XLE) with a rising channel (green lines) since late February. The trend is up so I am still on the lookout for support-reversal zones and short-term bullish setups or patterns. The first support-reversal zone is in the 78-82 area. Broken resistance turns support (blue shading) and the 50-67% retracement zone is here as well.

The Oil & Gas Equipment & Services ETF (XES) is the sensitive one of the group as it fell 15.7% over the last four days. Oil stalls, stocks plunge, XLE gets a cold and XES gets pneumonia.  Expect volatility with XES. The bears will see a potential double top (red arcs), but I am not looking for bearish patterns right now because oil is in an uptrend and XES is still in an uptrend. As such, I am looking for signs of support, a short-term bullish pattern or even an oversold condition. Of these three, we only have a short-term oversold condition based on the 4-day 15.7% decline. The problem is XES is short-term oversold and has yet to show signs of firming. It is still in the falling knife stage for this pullback.

Agricultural Commodities Also Holding Up


The DB Agriculture ETF (DBA) remains in a consistent and persistent uptrend, of which there are relatively few left. DBA hit a new high in mid May to confirm the uptrend and then fell back towards the 9-May low here in mid June. I view this as a correction within a bigger uptrend and consider the falling wedge a bullish continuation pattern. This means the odds favor a short-term breakout at some point and a continuation of the bigger uptrend. As far as a breakout, watch for a break above last week’s high or a StochRSI pop above .80.

The Wheat ETF (WEAT) is in a similar position. A falling flag formed and the ETF broke the flag line last week. WEAT fell back after this short-term breakout, but I still view the flag as a bullish continuation pattern within a bigger uptrend. The breakout is still working and the next signal would be a StochRSI pop above .80.

The Coffee ETF (JO) fell back over the last two weeks, but the bigger falling wedge breakout remains in play (and bullish). I view the falling wedge as a large bullish continuation pattern.

The Sugar ETF (CANE) was setting up with a short-term falling flag, but fell 3% the last two days and moved below the lower line. Even though the flag setup is not longer viable, the bigger trend is up and CANE is short-term oversold as the Momentum Composite dipped to -3. CANE is also nearing support from the March-May lows. An oversold setup is in the making so watch for some sort of firming and/or a short-term bullish catalyst.

Previous Commentary and Video

Thursday’s commentary (here) covered the following:

  • SPY Remains Close to Resistance-Reversal Zone (SPY, QQQ)
  • Small-caps Outperforming the last Two Weeks
  • Treasury Bond ETF Continues Lower as 10yr Yield Turns Up (TLT, TNX)
  • Dollar ETF Turns Back Up (UUP)
  • Utes and Dividends are Holding Up Well (XLU, DVY)
  • Healthcare SPDR Holds Short-term Breakout (XLV)
  • Counter-Trend Bounces for Staples and Food-Beverage (XLP, PBJ)
  • Counter Trend Bounces in Tech ETFs (IPAY, IGV, SOXX, DRIV)
    Consumer Discretionary and Retail in Strong Downtrends (RCD, XRT)
  • Home Construction ETF Shows Relative Strength (ITB)

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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