Weekend Video, Chart Notes and ChartBook Update

ETF Chart Notes for Saturday, January 4th

* These chart notes are also in the ChartBook PDF file (link above)

Weekly Performance Metrics for Core ETF List (60 ETFs)

New 52-week Highs (unadjusted data)

Equal-Weight Sectors: RTY, RTM
Small-cap Sectors: PSCT
Industry Group ETFs: SKYY, IPAY, SOXX, IGV

This Week’s Leaders: XES +3.12%, TAN +2.79%, XOP +2.74%, REMX +2.69%, ITA +2.53%, GLD +2.48%, FCG +2.36%, SLV +1.57%, HACK +1.56%, AMLP +1.52%

This Week’s Laggards: XBI -2.99%, IBB -2.63%, XLB -2.35%, XLE -2.08%, XRT -2.01%, XLV -1.65%, IHF -1.45%, XLP -1.38%, XME -0.96%, BOTZ -0.86%

As you can see from the lists above, there were plenty of 52-week highs this week. SPY (large-caps), QQQ (large-cap techs), MDY (mid-caps) and IJR (small-caps) hit new highs. Five of the eleven sector SPDRs hit new highs this week, while just two equal-weight sectors hit new highs.

Technology led the week with the Technology SPDR (XLK), the EW Technology ETF (RYT), the Small-cap Tech ETF (PSCT), the Semiconductor ETF (SOXX), the Cloud Computing ETF (SKYY), the Mobile Payments ETF (IPAY) and the Software ETF (IGV) hitting new highs.

SPY  hit a new high during the week, but finished the week with a .14% loss after a .71% decline on Friday. Selling pressure was contained on Friday as we did not see an outsized decline (greater than 1%). ATR(2) turned up and hit 29.40, while S&P 500 %Above 20-day EMA (!GT20SPX) turned down and hit 65.40%. Overall, the low volatility advance was not derailed with Friday’s modest decline.

The S&P MidCap 400 SPDR (MDY), S&P 500 EW ETF (RSP), Russell 2000 ETF (IWM) and S&P SmallCap 600 SPDR (IJR) have traded flat the last eight to ten days. Even though picture-perfect flat flags did not form, sideways price action for 8 to 10 days represents a consolidation within an uptrend. Also note that IJR closed on the high of the day Friday and S&P SmallCap 600 AD Percent ($SMLADP) was just -10.33% (mild selling pressure).

The Nasdaq 100 ETF (QQQ) surged 1.67% and this was the highest 1-day Rate-of-Change since September 5th. An outsize advance (Rate-of-Change) after an extended decline is bullish, but an outsized advance after an extended advance is a sign of excess (getting frothy). Ditto for XLK.

The S&P 500 Momentum ETF (MTUM) and S&P 500 Minimum Volatility ETF (USMV) both recorded 52-week highs this week. Thus, we are seeing strength from both sides of the market.

The Consumer Discretionary SPDR (XLY) broke out in mid December and this breakout is holding. AMZN is leading the charge with a breakout six days ago and HD is finding support just above its rising 200-day SMA.

Led by defense stocks, the Industrials SPDR (XLI) broke out of a pennant formation and recorded a new high. The Aerospace & Defense ETF (ITA) broke out of a falling wedge to signal follow through to the mean-reversion bounce.

Healthcare stocks were hit this week and finally started correcting after their market-leading moves from October to December. The Healthcare SPDR (XLV), Biotech ETF (IBB) and Biotech SPDR (XBI) all moved lower and RSI(10) dipped below 50 for all three. These declines are deemed corrections within a bigger uptrend and mean-reversion setups could be in the making. The Medical Devices ETF (IHI) held strong and consolidated the last six days.

The Energy SPDR (XLE) bounced off support from the falling wedge breakout (broken resistance turned support).

The Materials SPDR (XLB) led the sectors lower this week with a 2.35% decline and is nearing the broken resistance zone, which turns into first support.

The Utilities SPDR (XLU) consolidated the last two weeks. A consolidation after a sharp advance is typically a bullish continuation pattern.

The Real Estate SPDR (XLRE) and REIT ETF (IYR), which are bond proxies, broke out of falling wedge/channel patterns over the last 1-2 weeks.

The Cloud Computing ETF (SKYY) is challenging resistance from a small Ascending Triangle.

The Cyber Security ETF (HACK) broke out of a pennant to signal a continuation higher.

The Home Construction ETF (ITB) and Homebuilders ETF (XHB) extended their consolidations and volatility contractions (Bollinger Bands). Both recorded new highs in late October and these are viewed as consolidations within a bigger uptrend. Thus, the odds favor a bullish resolution and move higher.

The Regional Bank ETF (KRE) and Bank SPDR (KBE) hit new highs in mid December and then corrected with falling flags the last three weeks. RSI also moved into the 40-50 zone to become mildly oversold. Watch for flag breakouts.

The Strategic Metals ETF (REMX) hit a new low in August and then consolidated the last four months. The ETF surged the last seven days and is challenging the 200-day SMA (and September high).

Bonds and bond proxies strengthened this week. The Aggregate Bond ETF (AGG) broke a wedge line and resistance. The Corporate Bond ETF (LQD) broke out in late November and held this breakout throughout December. The 20+ Yr Treasury Bond ETF (TLT) formed a big falling wedge that held above the November low and rising 200-day SMA. TLT remains within the bigger falling wedge, but reversed the downswing within this wedge.

The Gold SPDR (GLD) broke out on December 24th and led the market with a 4.5% advance the last eight days. The ETF is near a new high, but RSI is also near 90. SLV also broke out and surged 5%.  I would have expected a bigger move from silver, given the surge in gold.

Enjoy your weekend!

-Arthur Hill, CMT
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