Timing Models – Red Herrings, Big Oversold Bounces, New Highs, RSI Streak Ended and IWM Remains Extended

Stocks shrugged off a sharp decline the last week of January and rebounded the first week of February with a strong surge. This surge extends the bigger uptrends as SPY, QQQ and IWM recorded new highs. The Technology SPDR (XLK) and Communication Services SPDR (XLC) led the sector SPDRs with new highs. The Consumer Discretionary SPDR (XLY) came close to a new high on Thursday and could hit one with further strength on Friday. The Energy SPDR (XLE) led with the biggest gain this week and a flag breakout, but XLE has yet to clear its January high, much less its June high. The Industrials SPDR (XLI) and Finance SPDR (XLF) gained 5% and 7% this week, respectively.

Overall, stocks were oversold at the end of January with RSI in the oversold zone for dozens of ETFs, including the sectors listed above. Pretty much everything bounced this week and most bounces were big. The turn of the month strategy (seasonal pattern), which covers the close from January 25th to February 4th, eked out a .47% gain (call it a push).

The major index ETFs are strong with new highs in the big three. Sector confirmation is a bit mixed because only XLK and XLC hit new highs (as of Thursday). The breadth models remain bullish with over 80% of S&P 500 stocks above their 200-day SMAs. However, we still saw some deterioration in the short-term breadth indicators (%Above 50 and %Above 20 Day SMAs). I am also concerned for a correction because RSI ended its streak above 50 in late January. Price action in SPY begs to differ for now. With new highs this week, the correction targets become moot, even though the major index ETFs are quite extended after big gains since late October.

SPY, QQQ and IWM Hit New Highs

RSI: Consecutive Days Above 50

Trend and Thrust Breadth Models

Trend Models

Thrust Models

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

SPX Sector Breadth Model

Sector Breadth Model charts can be found on the Art’s Charts ChartList.

Yield Spreads and Fed Balance Sheet

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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