Weekend Video, Chart Notes and ChartBook

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

New 52-week Highs (unadjusted data)

Major Index ETFs: SPY, QQQ, MTUM, USMV
Sector SPDRs: XLK, XLY, XLC, XLV, XLP, XLU
Equal-Weight Sectors: RHS, RYH, RYT, RYU
Small-cap Sectors: PSCD
Industry Groups: SKYY, FINX, IPAY, SOXX, IGV, ITB, XHB, REM, IYR, TAN, IHF, IHI
Other: VIG, PFF, LQD

This Week’s Leaders: XLU +3.11%, ITB +2.85%, TLT +2.06%, GDX +1.92%, FINX +1.72%, XLRE +1.14%, GLD +1.14%, MTUM +1.08%, SOXX +1.05%, XHB +1.03%

This Week’s Laggards: FCG -11.91%, XES -11.07%, XOP -10.11%, XME -6.88%, MJ -6.74%, AMLP -6.53%, XBI -6.52%, XLE -4.84%, REMX -4.55%, IBB -4.47%

ETF ChartNotes

Despite the selloff on Friday, there were still plenty of new highs this past week. SPY and QQQ hit new highs, several tech-related ETFs hit new highs and the Corporate Bond ETF (LQD) hit a new high.

The market turned seriously defensive this week with bond ETFs (TLT, AGG), precious metals related ETFs (GLD, GDX), Utilities (XLU) and REITs (XLRE) leading. We saw wedge breakouts in GLD and GDX around Christmas, a wedge breakout in XLRE in late December and wedge breakouts in TLT and AGG over the last two weeks. It is like a progression of defensiveness is hitting the market.                             

A more defensive market is not surprising given recent signs of excess. The weekly PPO(1,40,1) for SPY reached 9.74% the prior week and the two candlesticks in the middle of the month were quite large. SPY was 9.74% above its 40-week EMA and this is the most since January 2018. The big gains in the middle of the month also show some excess. This excess is not quite at the January 2018 levels, but close enough to warrant caution going forward.

ROC(1) for the S&P 500 did not exceed -1%, but Friday’s decline was the largest since early Oct. Relatively speaking, this was very close to an outsized decline and is the most selling pressure since the most recent leg up began. ATR(2) moved to its highest level since early Oct as volatility ticked higher. %Above 20-day EMA is at 55 and has yet to trigger bearish. The other two items to watch: a close below 328 to fill last Friday’s gap and an RSI(5) move below 30 to signal a sharp shift in momentum.

Now it’s time for a little subjectivity. Technically, a short-term bearish signal has yet to trigger, but I think it is close enough to signal the start of a corrective period. We saw the signs of excess the prior week and an increase in selling pressure this week, as well as a move into safe-haven bonds. This means I will be a lot more selective and put most bullish setups on hold, such as the falling flags in KRE and KBE.

Chartists might consider taking some money off the table and/or employing a Chandelier Exit (22,3) as a trailing stop for ETFs that are very extended. The setups and signals triggered in October, November and December. It was a great ride and we could now be in for a more difficult environment if the broader market moves into corrective mode.

Small-caps led the decline as S&P SmallCap 600 AD Percent ($SMLADP) moved below -80%, which means more than 90% of issues declined in the S&P SmallCap 600.

The High-Low Lines lagged in January 2018 and did not turn down until early February 2018, when the S&P 500 was already down 10%. Thus, more downside is needed for these indicators to turn. The S&P 500, S&P MidCap 400 and S&P SmallCap 600 High-Low Line are still rising. This group would turn negative if/when two of the three turn down and break their 10-day EMAs. This indicator may be better for timing upturns than downturns.

It is a bit early to start thinking about correction targets, but…A garden variety 5-6% decline in the SPY would carry it back to the 315 area and retrace around 38.2% of the prior advance. On the deeper side, broken resistance turns support in the 300 area and the rising 200-day is near 300. In addition, the 61.8% retracement is in the 302 area.

The flag/pennant breakouts in the Russell 2000 ETF (IWM), S&P MidCap 400 SPDR (MDY) and S&P SmallCap 600 SPDR (IJR) are holding for now, but looking VERY shaky as small-caps and mid-caps led the way lower the last five days.  

RSI(10) exceeded 90 for the S&P 500 Momentum ETF (MTUM) and 85 for the S&P 500 Minimum Volatility ETF (USMV) earlier this week. January 2018 was the last time RSI exceeded these levels.

More signs of excess. IBB, XBI, QQQ, IGV, XLK, SOXX and IHF are still up more than 20% since early October. Another 24 ETFs are up more than 10% and 13 ETFs are up more than 5% in January (16 days). These include: ITB, TAN, IGV, SKYY, FINX, FDN, IPAY, XLK, XAR, XLU, XHB, HACK and MTUM. TLT almost made the cut with a 4.78% gain.

The Finance SPDR (XLF) broke below the lows of its consolidation and could be poised for a deeper correction within its uptrend. The falling flags in the Regional Bank ETF (KRE) and Bank SPDR (KBE) are put on hold because the market appears to be moving into corrective mode. These two are also lagging with 5 percent declines the last five weeks.  

The Utilities SPDR (XLU) is the second best performing sector this year with a 5.8% gain. However, RSI(10) is above 90, which is its highest level in over 5 years. XLK is the best performing sector with a 6.3% gain.

The Energy SPDR (XLE) broke rising wedge support with a sharp decline the last five days. It is by far the weakest sector.  

The Materials SPDR (XLB), Industrials SPDR (XLI) and Consumer Discretionary SPDR (XLY) are holding above their breakout zones and remaining bullish overall, but their post-breakout extensions were not inspiring. They are “laboring” higher.

The Real Estate SPDR (XLRE) is near its August and October highs (52-week highs).  

The Home Construction ETF (ITB) is one of the leading industry group ETFs with a 9% gain in January. Its breakout occurred in mid January and it is now time to watch for a possible throwback to the breakout zone, which turns support.  

The Biotech ETF (IBB) and Biotech SPDR (XBI) failed to hold their flag breakouts and weighed on the Healthcare SPDR (XLV) with sharp declines this week.

The energy-related ETFs were pummeled this year with the Oil & Gas Equipment & Services ETF (XES), Oil & Gas Exploration & Production ETF (XOP) and Natural Gas ETF (FCG) falling more than 13% in January. All three failed to clear their falling 200-day SMAs earlier this month.

The Gold Miners ETF (GDX) broke out of a big falling wedge around Christmas and a small falling wedge on January 15th. Both breakouts are holding. The Gold SPDR (GLD) also ended its small consolidation with a breakout this week and is close to a new high. SLV is along for the ride, but still well below its September high.  Nevertheless, SLV broke out of a small falling wedge.

The Aggregate Bond ETF (AGG) and 20+ Yr Treasury Bond ETF (TLT) extended on their wedge breakouts and led the market higher the last four days. Note that both held above their rising 200-day SMAs recently and the wedge breakouts signal a continuation of the prior advances (March to August). New highs are expected as the bigger uptrends resume. The Corporate Bond ETF (LQD) hit a new high already. The High-Yield Bond ETF (HYG) fell because it behaves more like a stock and is economically sensitive.

The Core Emerging Markets ETF (IEMG) took a hit as the Dollar rose and US stocks fell.

The US Dollar Index (USD) moved back above its rising 200-day SMA.