Timing Models – QQQ Leads Short-term Pullback, but Long-term Evidence Remains Bullish (Premium)

Trend/Signal Summary

The long-term evidence remains bullish, but the major index ETFs have moved into corrective mode of varying degrees. The S&P 500 SPDR and Russell 2000 ETF are in the midst of shallow pullbacks, while the Nasdaq 100 ETF is leading the way lower with a sharp pullback. Downside participation was so strong in the Nasdaq 100 that the Breadth Thrust Model turned bearish for the index. Even so, the other thrust models remain bullish. Overall, I still view the current decline as a correction within a bigger uptrend, even for QQQ.   

Trend/Signal Summary

  • SPY is in a long-term uptrend and short-term downtrend (mild)
  • QQQ is in a long-term uptrend and short-term downtrend (sharp).
  • IWM is in a long-term uptrend and short-term downtrend (mild).
  • S&P 500 5-day SMA crossed above the 200-day on May 29th (uptrend).
  • SPX Trend Breadth Model is bullish (since July 20th)
  • SPX Thrust Breadth Model is bullish (since April 29th).
  • Index StochClose signals are all bullish (majority since May 29th).
  • Key sector StochClose signals are all bullish (majority since April 30th).
  • The Fed Balance sheet contracted a little this week.
  • Yield spreads remain low overall.

The broad market environment is based on the weight of the evidence and the weight of the evidence is bullish. First, we have the long-term trends for the big three: SPY, QQQ, IWM. These trends are up. Second, we have the breadth models and the evidence there is bullish. Third, we have the StochClose models for five index ETFs covering different market cap groups and the five most important sectors. Both of these are bullish. The Fed and yields spreads are also important, but still secondary to the first three.

Programming Note: I have been working on the breadth models for the major index ETFs. As you will see today, I replaced the S&P 100 model with the S&P 1500 model. Initial results suggests that the S&P 1500 model works as good as the S&P 500 model, and sometimes better. I will post these results in a commentary early next week.

Energy and Gold at Opposite Spectrums

Three Big Sectors Weigh

QQQ Leads the Pullback

Trend and Thrust Breadth Models

Trend Models

There is an adjustment to the Trend and Thrust Breadth Model tables. First, I am now showing the signals for the S&P 1500 instead of the S&P 100. There is too much overlap between the S&P 100, S&P 500 and Nasdaq 100. The S&P 1500 consists of the S&P 500, S&P MidCap 400 and S&P SmallCap 600. Even though we cover each index separately, the S&P 1500 represents the ultimate index for breadth because it includes small-caps, mid-caps, large-caps, Nasdaq stocks, NYSE stocks and all eleven sectors.

I also adjusted the table layout and it is now linked to the signals from Amibroker. This means no more eyeballing signals and updating the table by hand. The bull/bear signals remain color coded for easy identification and the signal dates are just below. The more green you see, the more bullish. The trouble starts when we start to see a good portion of the tables turn red. 

Thrust Models

You can learn more about the methodology and
historical performance for these breadth models in this article.

Index and Sector StochClose Models

Click here for an article explaining the StochClose models.
(test results are at the end of the article).

Yield Spreads and Fed Balance Sheet

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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