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Tuesday, February 27, 2024

The Market’s Compass US Index and Sector ETF Research

Welcome to The Market’s Compass US Index and Sector ETF Research, Week #466. As all the time it highlights the technical adjustments of the 30 US Index and Sector ETFs that I monitor on a weekly foundation and usually publish each third week. Paid subscribers will obtain this week’s unabridged Market’s Compass US Index and Sector ETF Research despatched to their registered e-mail. Free subscribers every so often will obtain an excerpt of the total model. Previous publications will be accessed by paid subscribers through The Market’s Compass Substack Weblog.

Within the spirit of Christmas, this week’s Weblog can be despatched to each free and paid subscribers. I cannot be publishing the ETF Research or Crypto Candy Sixteen Research for the following two weeks as I benefit from the Christmas Vacation and New Years celebration with household and mates. The following Market’s Compass ETF Research can be posted on Monday January eighth.

The Excel spreadsheet beneath signifies the weekly change within the goal Technical Rating (“TR”) of every particular person ETF. The technical rating or scoring system is a completely quantitative strategy that makes use of a number of technical issues that embrace however should not restricted to pattern, momentum, measurements of accumulation/distribution and relative power. If a person ETFs technical situation improves the Technical Rating TR rises and conversely if the technical situation continues to deteriorate the TR falls. The TR of every particular person ETF ranges from 0 to 50. The first take away from this unfold sheet ought to be the pattern of the person TRs, both the continued enchancment or deterioration, in addition to a change in course. Secondarily, a really low rating can sign an oversold situation and conversely a continued very excessive quantity will be seen as an overbought situation, however with due warning, oversold circumstances can proceed at apace and overbought securities which have exhibited extraordinary momentum can simply change into extra overbought. As well as, if a person TR “can’t “get out of its personal means” whereas the broader market continues to rally it speaks volumes about poor relative power. A sustained pattern change must unfold within the TR for it to be actionable.

For the week ending December eighth (the week earlier than final) there have been fifteen ETFs within the “inexperienced zone” (TRs between 35-50), twelve ETFs have been within the “blue zone” (TRs from 15.5 -34.5) and three have been within the “pink zone” (TRs from 1-15). On the finish of final week twenty-three ETF have been within the “inexperienced zone”, six ETFs within the “blue zone” and just one remained within the “pink zone”. That was the SPDR S&P Oil & Gasoline Exploration and Manufacturing ETF (XOP). The Complete ETF Rating or “TER”, rose by +14.99% to 1147 from 997.5.

On every week over week foundation 29 ETFs noticed good points of their TRs and one had a TR that was unchanged. The typical TR acquire on the week was +4.98. The highest three TR gainers have been the iShares Nasdaq Biotechnology ETF (IBB) which rose +12 to 35.5 from 23.5 adopted by the VanEck Vectors Metal ETF (SLX) which rose by + 10.5 “handles” to 42 from 31.5 and the SPDR Vitality Choose Sector Fund ETF (XLE) which rose +9.5 to 17 from 7.5. The SPDR Expertise Choose Sector Fund ETF (XLK) ended the week with not solely one of the best Technical Rating of the 30 ETFs we monitor on this Research but in addition recorded an ideal TR of fifty.

There are eight Technical Situation Components (“TCFs”) that decide particular person TR scores (0-50). Every of those 8, ask goal technical questions (see the spreadsheet posted beneath). If a technical query is constructive a further level is added to the person TR. Conversely if the technical query is adverse, it receives a “0”. A couple of TCFs carry extra weight than the others such because the Weekly Pattern Issue and the Weekly Momentum Consider compiling every particular person TR of every of the 30 ETFs. Due to that, the excel sheet beneath calculates every Issue’s weekly studying as a p.c of the potential whole. For instance, there are 7 issues (or questions) within the Day by day Momentum Situation Issue (“DMC”) of the 30 ETFs (or 7 X 30) for a potential vary of 0-210 if all 30 ETFs had fulfilled the DMC Issue standards the studying could be 210 or 100%.

One technical take away could be if the DMC rises to an excessive between 85% and 100% it could recommend a short-term overbought situation. Conversely a studying within the vary of 0% to fifteen% would recommend an oversold situation was growing. This previous week a 90.00% overbought studying of the DMC Issue was registered, or 189 of a potential whole of 210 constructive factors.

As a affirmation instrument, if all eight TCFs enhance on every week over week foundation, extra of the 30 ETFs are bettering internally on a technical foundation confirming a broader market transfer larger (consider an advance/decline calculation). Conversely if all eight TCFs fell over the week it confirms a transfer decrease within the broader market. Final week seven TCFs moved larger and one was unchanged vs. the earlier week confirming the broader market transfer larger.

The “TER” Indicator is a complete of all 30 particular person ETF rankings and will be checked out as a further affirmation/divergence indicator in addition to an overbought oversold indicator. As a affirmation/divergence instrument: If the broader market as measured by the S&P 500 Index (SPX) continues to rally with no commensurate transfer or larger transfer within the “TER” the continued rally within the SPX Index turns into more and more in jeopardy. Conversely, if the SPX Index continues to print decrease lows and there may be little change or a constructing enchancment within the “TER” a constructive divergence is registered. That is, in a trend, like a standard A/D Line. As an overbought/oversold indicator: The nearer the “TER” will get to the 1500 stage (all 30 ETFs having a “TR” of fifty) “issues can’t get significantly better technically” and a rising quantity particular person ETFs have change into “stretched” the extra of an opportunity of a pullback within the SPX Index, On the flip aspect the nearer to an excessive low “issues can’t get a lot worse technically” and a rising variety of ETFs are “washed out technically” an oversold rally or measurable low is near being in place. The 13-week exponential shifting common (pink line) smooths the risky “TR” readings and analytically is a greater indicator of pattern.

On the finish of final week, the Complete Technical Rating, “TER”, rose to the very best stage,1147, since April of 2021. In doing so the “TER” lastly confirmed the brand new restoration closing value highs on Friday (4,719.19) though it may be thought of a double-edged sword in that the “TER” is shortly closing in on overbought stage. The 13-Week Exponential Shifting Common which had hooked larger in November is monitoring larger in live performance with the “TER”. The rally from the late October value lows has been impulsive and I anticipate that earlier than a significant pullback develops the SPX Index will problem the December thirty first, 2021, closing excessive at 4,766.16.

The Weekly Common Technical Rating (“ATR”) is the typical Technical Rating of the 30 US Index and Sector ETFs we monitor. Just like the TER, it’s a affirmation/divergence or overbought/oversold indicator.

After two weeks of failed makes an attempt (though it did make progress on the value entrance) the massive cap index overtook the Higher Parallel (stable purple line) of the Normal Pitchfork (purple P1 although P3) by the tip of final week. After it grew to become clear that an vital swing low was in place eight weeks in the past I added a second Pitchfork. On this case it’s a Schiff Pitchfork variation (inexperienced P1 by means of P3) the Higher Parallel of that Pitchfork (stable inexperienced line) has so far capped the rally. The Common Technical Rating Oscillator, “ATR” has reached an overbought stage excessive at 38.23. It isn’t unusual for the ATR to eclipse the 41/42 stage however it’s at present near that excessive stage. As I stated beforehand, the impulsive nature of the rally together with the flip in MACD again by means of its sign line suggests to me that the December 2021 highs can be challenged however the momentum oscillator has but to verify the brand new value restoration highs.

Extra on the shorter time period technical situation in “Ideas on the short-term technical situation of the SPX Index” later within the Weblog however first….

*Doesn’t embrace dividends

All 30 of the US ETFs we monitor on this weblog superior on an absolute foundation final week. The typical absolute acquire on the week was +4.37% vs. a +2.49% acquire within the SPX Index. That added to the earlier week’s common absolute acquire of +0.90%. Solely 4 ETFs underperformed the massive cap indexes weekly acquire. The very best two absolute gainers have been the iShares U.S. Regional Banks Index Fund ETF (IAT) up +8.27% adopted by a 8.10% acquire within the SPDR S&P Regional Banking ETF (KRE). As can be seen later within the Weblog, regardless of the higher efficiency final week, it’ll take much more backside fishing to get well all of the misplaced floor over the 12 months. Each financial institution ETFs are nonetheless on the backside of the year-to-date efficiency record.

*Of curiosity to scalpers, merchants, and technicians

After two weeks of value consolidation the SPX lifted off once more with MACD retaking the bottom above its sign line in constructive territory and with it the momentum oscillator has confirmed the brand new value highs. The early turning Fisher Rework is just not giving a touch that the rally has run its course. One minor technical concern is that my US ETF Day by day Momentum / Breadth Oscillator has but to verify the brand new value highs. Key value and Kijun Plot (stable inexperienced line) help is at 4,540.

*Doesn’t embrace dividends

For readers who’re unfamiliar with the technical phrases or instruments referred to within the feedback on the technical situation of the SPX can avail themselves of a quick tutorial titled, Instruments of Technical Evaluation or the Three-Half Pitchfork Papers that’s posted on The Markets Compass web site…


Charts are courtesy of Optuma.

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