ETF Ranking and Grouping – Tech ETFs Holding Up, but other Groups Breaking Down

QQQ, XLK and some tech-related ETFs moved to new highs again this week, but these new highs were not matched elsewhere and non-confirmations are building. For example, QQQ forged a higher high from June 10th to June 24th, but SPY and IWM did not. QQQ and techs have been leading for some time, and they continue to lead. However, we are now seeing breakdowns in some of the underperforming groups, such as energy and finance related ETFs. Furthermore, the Russell 2000 ETF has a bearish wedge working and the 20+ Yr Treasury Bond is poised for a breakout. Stocks and bonds are the yin and yang of the markets so a breakout in bonds could coincide with a breakdown in stocks.

Tech leads, while Finance and Energy Lag

The scatter plot below shows StochClose (125,5) on the y-axis and 14-day RSI on the x-axis. ETFs in the top-right are leading with strong uptrends and minimal pullbacks the last few days. They have StochClose values above 90 and RSI values above 55. These include IBB, GLD, AGG, LQD, IGV, FDN, SKYY and XLK.  Again, tech, precious metals and bond ETFs are the strongest.

ETFs in the lower-left are lagging with StochClose and RSI values below 50. These ETFs experienced some of the weakest bounces from late March to early June and are already showing signs of breaking down. They include XLE, XLF, XME, XAR, KBE and KRE. Again, energy and finance related ETFs are the weakest.  

The next image shows the top 21 ETFs ranked by StochClose (125,5). The top five ETFs (XBI, SKYY, FDN, IGV and IBB) recorded new highs this week. Again, outside of technology, we are seeing leadership in bond and precious metals ETFs.

New Highs and Leading


The first chart shows IBB breaking out of a consolidation pattern and hitting a new high. Breakouts seem obviously bullish and new highs are bullish. However, the lower-risk mean-reversion setup was two weeks ago when IBB tested support and RSI dipped into the 40-50 zone. A bullish engulfing formed at support on June 15th and price confirmed with a gain the next day. The breakout is still bullish and shows relative strength, but the market is starting to look shaky.

The next chart shows GLD with a similar sequence and setup: surge, new high, long consolidation, mildly oversold, bounce and breakout. Again, the true setup occurred when RSI dipped into the 40-50 zone on June 5th and StochRSI triggered a momentum thrust on June 10th. This breakout is bullish and puts gold in the leadership group.

The next chart shows XLK with a new high, but the second bearish candlestick reversal pattern this month. The red ovals highlight evening star patterns. At this stage, XLK is up over 40% and has yet to have a pullback that lasted more than 3 days. That is crazy strong! XLK and several other tech-related ETFs established short-term support levels with the bounce over the last seven days. Support breaks here would reverse the medium-term uptrend and call for at least a correction, perhaps back to the rising 200-day.

Surge, Consolidation and Breakout


The Gold Miners ETF (GDX) and Aggregate Bond ETF (AGG) charts look quite similar. In fact, they show a strong positive 65-day correlation. The indicator window on the chart below shows the 65-day Correlation Coefficient turning positive last June and remaining positive for over a year. GDX broke out of a falling flag this week and AGG broke out of a bullish consolidation in mid June.

New High and Short-term Stall


The next chart shows the Semiconductor ETF (SOXX) and Corporate Bond ETF (LQD) hitting new highs in early June and then consolidating. Notice that LQD corrected from mid April to mid May and SOXX formed a pennant into mid May. Both broke out on May 18th. The rise in corporate bonds translates into falling bond yields and narrowing yield spreads. This narrowing of yield spreads prompted the surge in stocks from mid May to early June.

SOXX and LQD stalled the last two-three weeks and established short-term support levels to watch. A breakdown in LQD would reflect an increase in bond yields and a widening of spreads. It has not happened yet, but is something to watch. A support break in SOXX would argue for a correction after a 50+ percent advance.

Bullish Reversal above 200-day


The next chart shows SPY, TLT and the 65-day Correlation Coefficient. Notice that TLT surged when SPY broke down in late February and early March. Chaos then hit the bond market with some serious volatility the rest of March. This settled down and TLT corrected by retracing 50-61.8% of the March-April bounce. The ETF is well above its rising 200-day and it looks like the correction is ending as TLT forged a short-term reversal in early June. TLT stalled the last two days and a breakout around 166 would be quite bullish.

The indicator window shows the Correlation Coefficient spending most of its time in negative territory. There was a big blip into positive territory in January-February and a small blip in early June. Correlation is back negative and this means TLT moves in the opposite direction as SPY. A breakout in TLT, therefore, could also have negative implications for SPY.

Short-term Stall above 200-day


There are a number of ETFs that surged from late March to early June and then stalled the last two weeks or so. These ETFs fell short of their February highs, but exceeded their 200-day SMAs and stalled. These stalls could evolve into pennants or flags and amount to bullish continuation patterns. Alternatively, these ETFs established short-term support levels with the early June low and breaks here would reverse the medium-term uptrend by forging a lower low. At the very least, all are ripe for corrections after massive moves from late March to early June. The chart below shows examples using the Home Construction ETF (ITB), Retail SPDR (XRT) and Mobile Payments ETF (IPAY).

Long Stall above 200-day


The health-care related ETFs may seem like a good place to hide out, but the Healthcare SPDR (XLV), Healthcare Providers ETF (IHF) and Medical Devices ETF (IHI) have been underperforming since mid April. Of course, this is when the market turned more risk-on and shunned the more defensive plays. They may benefit should the market turn risk averse. All three are still in uptrends as they stall just above their 200-day SMAs. In fact, they are at a moment of truth as they test support that extends back to early May. Support breaks and breaks below the 200-day would be negative.

Well below February High and Battling 200-day


SPY was covered in a commentary earlier today. The chart below shows the Materials SPDR (XLB) surging above its 200-day and failing to hold this break. The ETF gapped down on June 11th and did not fill this gap during last week’s bounce attempt. It is looking like a bearish breakaway gap and XLB is back below its 200-day SMA.

Rising Wedge and below 200-day


Even though QQQ, XLK and several tech related ETFs hit new highs in June, the average stock and small-cap stocks did not come close to new highs and ultimately failed at the 200-day SMA. Classic bear market price action often involves a big decline that breaks the bull’s back and a counter-trend bounce that returns to the 200-day. Keep in mind that 200-day SMAs should be drawn with fat markers because they are just zones. Anyhow, IWM broke above the 200-day for three days and fell right back below.

In addition to a failure near the 200-day, IWM has a rising wedge working and this is typical for a bear market bounce. The plunge in late February and March is the primary downtrend (impulse move lower) and the rising wedge is the secondary uptrend (corrective bounce). A break below support would reverse this uptrend and signal a continuation of the primary downtrend.

Failure to Hold above 200-day


Even though I put these ETFs into different groupings, the differences between the last two groups, this group and the next group are quite small. All hit new lows and moved back to their 200-day SMAs in late May and early June. They are also showing signs of reversing near their 200-day SMA as well. The chart below shows the Industrials SPDR (XLI) surging some 30% and moving above its 200-day in early June. This did not last long as the ETF fell 13% the last 12 days and is on the verge of breaking the mid June low (support).

Failure near 200-day and 61.8% Retracement


The next chart shows XLF failing to exceed its 200-day SMA and reversing near the 61.8% retracement. ETFs that did not exceed their 200-day SMAs are lagging. XLF is also lagging with one of the steeper declines over the last 12 days.

Long Stall below 200-day


The Consumer Staples SPDR (XLP) and the Utilities SPDR (XLU) managed to exceed their 200-day SMAs in early June, but these breaks did not last long as both fell back. These two have been lagging since mid April because they remained largely below their 200-day SMAs and traded sideways. In fact, they are weaker than the healthcare-related ETFs because they are below their 200-day SMAs.

Failure at 200-day and Breaking Down


ETFs in this next group led the way lower by peaking in December-January and hitting new lows in March. They bounced with counter-trend advances, but these advances appear to be reversing with sharp declines the last seven days. The chart below shows the Natural Gas ETF (FCG) failing near the 200-day and breaking support with a sharp decline on Wednesday. The Metals & Mining SPDR (XME) did not exceed its 200-day and is currently testing support near 20.

Counter-trend Bounce and June Reversal Near 200-day


The next group failed to exceed their 200-day SMA and are breaking down. The chart below shows the Regional Bank ETF (KRE) and the Energy SPDR (XLE) peaking below the 200-day SMA and in the 50-61.8% retracement zone. Both broke their “subjective” trendlines and exceeded last week’s low. Anything that already exceeded last week’s low is leading the decline and showing relative weakness.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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