Ranking and Grouping ETFs – Precious Metals and Bonds Hijack Halloween

Even though stock-related ETFs are dominating here in October with big moves and new highs in several key groups, the precious metals and bond ETFs hijacked the stage here at the end of October. The Gold SPDR and Gold Miners ETF fell back in September-October, but formed bullish continuation patterns. As we see in group 6 below, GLD and GDX are breaking out of these patterns. The 20+ Yr Treasury Bond ETF (TLT) is also perking up with a short-term breakout within a bigger corrective pattern.

Most stock-related ETFs are performing well, but there is still a sizable group of laggards and those in outright downtrends. Of the 60 ETFs in the core list, 17 are deemed in extended corrections or downtrends. These include several tech-related ETFs, energy-related ETFs, the Biotech SPDR and the Metals & Mining SPDR. I still have the tech-related ETFs on my radar, but ETFs in extended downtrends are not on my radar.

Ranking and Grouping Summary

1) Steady Uptrends and New Highs

  • ITB, XHB, IYR, PFF

2) Uptrends, Consolidation Breakouts and New Highs

  • SPY, QQQ, XLK, XLF, SOXX, EFA, XLV

3) Uptrends with Short-term Bullish Patterns

  • USMV, XLP, XLU, XLRE, KIE, ITA, IHI, VIG

4) Uptrends, Consolidations, Short of New Highs

  • RSP, MTUM, XLY, XLI, XLC, XLB, HYG

5) Emerging Leaders and Uptrends

  • HACK, IJR, BOTZ, XRT, KBE, KRE, REM, IEMG, IBB, IHF

6) Uptrends and Corrective Patterns

  • GDX, AGG, TLT, LQD, GLD, SLV, UUP

7) Flat or Correcting and Short of Breakouts

  • MDY, IWM, SKYY, FINX, FDN, IPAY, IGV

8) Downtrends and Lagging

  • XLE, TAN, MJ, XBI , FCG, XES, XOP, AMLP, XME, REMX

1) Steady Uptrends and New Highs

ITB, XHB, IYR, PFF

The Home Construction ETF (ITB) and Homebuilders ETF (XHB)  remain two of the strongest ETFs in my core list because they have the steadiest uptrends and hit new highs on Monday. Even though they fell back the last three days and look ripe for a corrective period, their charts are still quite strong. Note that ITB is up 18% and XHB is up 15% over the last two months. We do not need a momentum oscillator to understand that they are ripe for a corrective period. Corrections can involve price, time or both. Prices can decline, move sideways (time) or edge lower during corrective periods. A correction back to the 42 area in ITB or 43 area in XHB, and an RSI move into the 30-40 zone, could set up the next mean-reversion opportunity.  

2) Uptrends, Consolidation Breakouts and New Highs

SPY, QQQ, XLK, XLF, SOXX, EFA, XLV*

It is hard to be bearish on stocks when one looks at the list of ETFs recording new highs or near new highs (*XLV has yet to hit a new 52-week high). The S&P 500 SPDR (SPY), Nasdaq 100 ETF (QQQ), Technology SPDR (XLK), Finance SPDR (XLF) and Europe, Australasia and Far East ETF (EFA) all hit new highs. The last ETF (EFA) represents stocks outside the US and Canada. Combined with a new high in SPY, this suggest global strength in equities, at least large-caps.

SPY broke out of an Ascending Triangle and QQQ broke out of a Symmetrical Triangle. Even though these triangles have different descriptive adjectives, they tell the same story. SPY and QQQ hit new highs in July, consolidated and broke out of these consolidations. The breakouts signal a continuation higher and new highs are bullish.

Short-term, the gaps and breakouts on October 11th proved the early signal. Note that these breakouts occurred after the surge on October 4th. Thus, the October 11th gain was a follow through day and we saw even more follow through this week. We could see a short-term rest or pullback at some point, but I would view short-term weakness as an opportunity, not a threat.

XLV continues to climb the ranks and is now in group 2 as the ETF hit a new high for 2019. XLV is a leading sector in October with a 7.86% gain the last 20 days and a move above the summer high. Note that Healthcare is the second largest sector in the S&P 500 (14%) so the revival in XLV is helping this broad index.

3) Uptrends with Short-term Bullish Patterns

USMV, XLP, XLU, XLRE, KIE, ITA, IHI, VIG

The next group of ETFs were leading the market, but corrected recently with short-term bullish continuation patterns. They are not at new highs now so they are not as strong as ETFs in the first two groups. The S&P 500 Minimum Volatility ETF (USMV), Consumer Discretionary SPDR (XLY), Utilities SPDR (XLU) and Real Estate SPDR (XLRE) headline this group with bull flags taking shape. USMV broke out of its bull flag in mid October and is holding this breakout for the most part.

The Insurance ETF (KIE), Aerospace & Defense ETF (ITA) and Medical Devices ETF (IHI) are a bit different with triangles or wedges forming. Note that all three hit new highs in September and became short-term oversold in early October when RSI(10) dipped below 30. Corrective patterns formed and they bounced within these patterns. Sometimes you can get an early signal by timing the oversold bounce within a corrective pattern. IHI broke out this week and ITA is challenging the wedge line.

4) Uptrends, Consolidations, Short of New Highs

RSP, MTUM, XLY, XLI, XLC, XLB, HYG

The next group of ETFs are in uptrends overall, but they are still consolidating and/or have yet to hit new highs. They are lagging groups 1 and 2 because they are short of new highs, but they are not in downtrends. The strongest in this group are very close to new highs and include the S&P 500 EW ETF (RSP), Industrials SPDR (XLI) and the High-Yield Bond ETF (HYG). Note XLI hit a new closing high, but did not exceed its mid September intraday high. HYG has a bullish Ascending Triangle working and is within 1% of a 52-week high.

The S&P 500 Momentum ETF (MTUM) and Communication Services SPDR (XLC) are not quite as strong because they are further below their consolidation highs. Nevertheless, MTUM is bouncing off support and breaking the mid October high. Notice that this bounce started when RSI(10) moved back above 30 in early October for a classic mean-reversion move. A close below this week’s low would warrant a re-evaluation of the short-term breakout.

XLC surged off support in early October and then stalled the last two weeks with a flat flag (blue shading). A break above 51 would signal a continuation higher and argue for a break above the summer high (and a new 52-week high).

5) Emerging Leaders and Uptrends

HACK, IJR, BOTZ, XRT, KBE, KRE, REM, IEMG, IBB, IHF

The emerging leaders and uptrends group is expanding as the Cyber Security ETF (HACK), S&P SmallCap 600 SPDR (IJR) and Biotech ETF (IBB) joined with higher highs. This is quite a diverse group and these ETFs are in some stage of an early uptrend. The Robotics & Artificial Intelligence ETF (BOTZ) held well above its August low in early October and broke out in mid October. The Regional Bank ETF (KRE) also formed a higher low in early October, but did not forge a higher high until this week.

KRE sports a very recent higher high (emerging uptrend). The ETF is up around 10% from its October low and RSI(10) moved above 70 this week. This is all positive, but the ETF is also short-term extended and ripe for a rest. Personally, I am not a chaser when a new uptrend emerges and an ETF is short-term overbought. I would rather put this on the radar for a mean-reversion setup and wait to see if RSI dips into the 30-40 zone.

The Cyber Security ETF (HACK) and the Cybersecurity ETF (CIBR) broke away from the other tech-related ETFs with a big move and breakout this week. I chose HACK over CIBR for my core ETF list, but I often check the chart for CIBR. The first chart shows HACK dipping below its June low, but reversing in the 50-61.8% retracement zone with a wedge line break and following through this week with a break above the September highs. Overall it looks like the wedge was a big correction and this breakout signals a continuation of the bigger uptrend. HACK is quite extended already, but this is definitely one to put on the radar for a mean-reversion setup down the road.

Here is a comma separated list of some symbols from HACK and CIBR:

csco,panw,splk,tenb,feye,carb,cvlt,chkp,pfpt,swi,symc,vmw,avgo,okta,ffiv,jnpr,ftnt,qlys

6) Uptrends and Corrective Patterns

GDX, AGG, TLT, LQD, GLD, SLV, UUP

Now we get to a very interesting group that includes the Gold SPDR (GLD), the 20+ Yr Treasury Bond ETF (TLT) and the Dollar ETF (UUP). Personally, I am more of a stock and stock-related ETF kind of guy, and tend to shun commodity, fixed income and currency ETFs. Even so, I cannot ignore the bullish continuation patterns taking shape and some recent breakouts. GLD is breaking out of a falling flag, while SLV and GDX broke out of falling wedge patterns. This breakouts signal an end to the corrections and a resumption of the bigger uptrends. Chartists can use the mid October lows to mark the re-evaluation level. A close below the mid October lows would negate these breakouts and patterns.

TLT sports a short-term breakout within a bigger consolidation. This is an example of a pattern within a pattern. The triangle is the bigger pattern and it is a bullish continuation pattern because it formed after a new high. TLT declined in October and then broke short-term resistance with a surge the last two days. This is a short-term reversal within the bigger bullish pattern and this acts as the early signal. Also notice that RSI(10) dipped below 30 this week.

7) Flat or Correcting and Short of Breakouts

MDY, IWM, SKYY, FINX, FDN, IPAY, IGV

Downtrends start appearing here with group 7. Even though falling wedges are taking shape in a number of these tech-related ETFs, they remain below their September highs and they are lagging overall. The Mobile Payments ETF (IPAY) and Software ETF (IGV) still stand out as the two holding up the best. IGV sports a falling wedge pattern from early August to October with the October high marking resistance. A breakout here is needed to reverse the decline. IPAY is the only one that held above its 200-day SMA in October. IPAY found support in the 45 area and needs to break the mid October high to reverse the three month decline.  

8) Downtrends and Lagging

XLE, TAN, MJ, XBI , FCG, XES, XOP, AMLP, XME, REMX

ETFs in downtrends make up the final group. Even though some may be near support, the lower highs persist and they are clearly not in uptrends. The Solar Energy ETF (TAN) is the most recent addition to the downtrend group as it broke below support extending back to mid July. The market rallied in October and TAN did nothing. It is now breaking a prior low and showing weakness.

Bottom Line

October has been quite the month for stocks with new highs in several key index, sector and industry group ETFs. This week we saw new highs in the S&P 500 SPDR, the Finance SPDR and the Semiconductor ETF, to name a few. This shows strength in the broader market (SPY), finance-related stocks (XLF) and semiconductors (SOXX). This kind of strength bodes well for stocks overall.

The defensive groups lagged a bit in October, but they certainly did not break down or really weaken. Instead, we saw the S&P 500 Minimum Volatility ETF, Consumer Staples SPDR and Utilities SPDR simply consolidate and digest recent gains. A consolidation within an uptrend is a bullish continuation pattern so these three are still performing well.

Even though we saw new highs in several key groups, there were also a few groups that remain short of breakouts and within consolidations. The S&P 500 Momentum ETF, Comm Services SPDR and Consumer Discretionary SPDR have been range bound since August and below their summer highs. These ETFs bounced in October, but we need to see some more follow through to get the breakouts and new highs.

I will be watching the move in the bond ETFs quite closely because strength in bonds could be a negative for stocks. Bonds represent the ultimate safe-haven that benefits when the economic outlook deteriorates or inflation rears its ugly head. The move into bonds, and perhaps gold to some extent, shows a flight to safety. We have yet to see money moving out of the S&P 500 SPDR and Nasdaq 100 ETF, but I will be watching these two closely.

-Arthur Hill, CMT
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