Welcome to The Market’s Compass US Index and Sector ETF Study, Week #577. As always it highlights the technical changes of the 30 US Index and Sector ETFs that I track on a weekly basis and normally publish every third week. Past publications can be accessed by paid subscribers via The Market’s Compass Substack Blog.
To understand the methodology used in constructing the objective U.S. Index and Sector ETF Individual Technical Rankings visit the MC’s Technical Indicators page at www.themarketscompass.com and go to “us etfs”. What follows is a Cliff Notes version* of the full explanation…
*The technical ranking system is a quantitative approach that utilizes multiple technical considerations that include but are not limited to trend, momentum, measurements of accumulation/distribution and relative strength of each individual 30 U.S Index and Sector ETFs that can range between 0 and 50. The Total Technical Ranking is the sum of the 30 US ETFs individual Technical Rankings.
The Total Technical Ranking or “TER” of the U.S. Index and Sector ETFs rose +2.56% last week to 1140.5 from 1112 the previous week which was a drop from the 1176.5 reading of 1226 three weeks ago after waffling back and forth since the 1226 overbought reading for the week ending January 16th.
Nineteen ETFs registered increases in their TRs last week, and eleven ETF TRs fell. The spread between the best gainers in TR and drop in TR was the narrowest in recent memory. Twenty-four ETF TRs ended the week in the “green zone” (TRs from 35 to 50), four ended the week in the “blue zone” (TRs from 15.5 to 34.5) and two remained in the “red zone” (TRs between 0 and 15), those was the SPDR Financial Select Sector Fund ETF (XLF) and the First Trust DJ Internet Index Fund ETF (FDN). That was vs. the previous week when there were twenty-one in the “green zone”, seven were in the “blue zone”, and two were in the “red zone”. The average TR gain on the week was +0.76 vs. the week before average TR loss of -2.14. The week before average was skewed by a 21.5 TR loss in the SPDR Financial Select Sector Fund ETF (XLF).
The Relative Rotation Graph, commonly referred to as RRGs were developed in 2004-2005 by Julius de Kempenaer. These charts are a unique visualization tool for relative strength analysis. Chartists can use RRGs to analyze the relative strength trends of several securities against a common benchmark, (in this case the SPX Index) and against each other over any given time period (in the case below, daily) over the past three weeks. The power of RRG is its ability to plot relative performance on one graph and show true rotation. All RRGs charts use four quadrants to define the four phases of a relative trend. The Optuma RRG charts uses, From Leading (in green) to Weakening (in yellow) to Lagging (in pink) to Improving (in blue) and back to Leading (in green). True rotations can be seen as securities move from one quadrant to the other over time. This is only a brief explanation of how to interpret RRG charts. To learn more, see the post scripts and links at the end of this Blog.
Not all 30 US Index and Sector ETFs are plotted in this RRG Chart. I have done this for clarity purposes. Those which I believe are of higher technical interest remain.
Not surprisingly, considering they are always connected at their hips, the VanEck Vectors Gold Miners ETF (GDX) and VanEck Vectors Junior Gold Miners ETF (GDXJ) both fell in tandem out of the Leading Quadrant into the Weakening Quadrant two weeks ago but turned sharply last week, regaining Relative Strength Momentum and reentered the Leading Quadrant late last week. Although the SPDR S&P Metals and Miners ETF (XME) initially fell in tandem with the GDX and GDXJ it did not hook sharply higher and it only managed to turn up and enter the Lagging Quadrant. Although it has lost a degree of Relative Strength Momentum the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) remains in the Leading Quadrant and continued to sport the second best Relative Strength ratio vs. the S&P 500 Index at the end of last week behind the VanEck Vectors Oil Services ETF (OIH see the Tabulation Table below). The First Trust DJ Internet Index Fund ETF (FDN) hooked higher late last week regaining a small measure of Relative Strength Momentum, but it remains in the Lagging Quadrant marking the weakest Relative Strength Ratio of the 30 ETFs tracked in the Study.
The Relative Strength and Relative Strength “Tabulation Table” begins with the readings at the end of last week followed by the trailing three weeks that includes the Readings from the last Study. If there has been an improvement in either the Relative Strength Ratio or the Relative Strength Momentum reading on a week-over-week basis I have highlighted it in green. If there has been a contraction in either, it is highlighted in red and an unchanged reading in either will remain in black. The color-coding system serves as a heat map over the past four Friday’s readings highlighting either the continued improvement, deterioration, or stasis vs. the benchmark, the SPX Index.
*The Technical Condition Factors are derived from a calculation of the total Individual US Index and Sector ETF Technical Rankings. What is shown in the excel panel below is the total TCFs of all thirty TRs. A few TCFs carry more weight than the others, such as the Weekly Trend Factor and the Weekly Momentum Factor in compiling each individual TR of each of the 30 ETFs. Because of that, the excel sheet below calculates each factor’s weekly reading as a percentage of the possible total.
To fully understand the construction the of The Technical Condition Factors visit the MC’s Technical Indicators page at www.themarketscompass.com and go to “us etfs”.
One technical takeaway would be, for example, if the Daily Momentum Condition Technical Factor or DMCTF rose to an extreme between 85% and 100%, it would suggest a short-term overbought condition. Conversely, a reading in the range of 0% to 15% would suggest an oversold condition was developing. This past week a neutral reading of 50.00% was registered in the DMCTF or 105 out of a total of 210 positive points, which was up from 42.86% the previous week.
As a confirmation tool, if all eight TCFs improve on a week over week basis, more of the 30 ETFs are improving internally on a technical basis confirming a broader market move higher (think of an advance/decline calculation). Conversely if all eight TCFs fell over the week it confirms a move lower in the broader market. Last week seven TCFs gained ground and one fell.
The Total US ETF Technical Ranking (“TER”) Indicator is a total of all 30 ETF rankings and can be looked at as a confirmation/divergence indicator as well as an overbought oversold indicator.
The SPX Index hit a wall at the 7000 level and as will be seen further into this week’s Study, a week ago last Thursday, the large cap index pulled back sharply before last week’s rebound. The Total ETF Ranking has been churning sideways just below overbought territory, but the 13-Week Exponential Moving Average has managed to continue to track higher.
The Weekly Average Technical Ranking (“ATR”) is the average Technical Ranking of the 30 US Index and Sector ETFs we track. Like the TER, it is a confirmation/divergence as well as an overbought/oversold indicator.
After rapping its head at just above the 7,000 level for three consecutive weeks, the S&P 500 Index fell below the Schiff Modified Pitchfork’s (red P1-P3) Lower Parallel (solid red line) on an intra-week basis last week but managed to recover at weeks end closing back into the confines of the Pitchfork. The Average Technical Ranking Oscillator has been churning sideways giving little directional clue as to price direction, but the price pattern is beginning to look “toppy”. The comments on the Daily chart will address the shorter-term technical condition but first…
Twenty-two of the U.S. Index and Sector ETFs were up on an absolute basis last week and eight lost ground. Thirteen ETFs outpaced the +1.07% gain in the SPX Index on a relative basis and seventeen underperformed. The 5-Day Average Absolute gain was +0.90% vs. the week before Average Absolute gain of +0.26%.
A week ago, last Thursday the SPX fell below Cloud support, the Kijun Plot, and the Median Line (violet dotted line) of the newly drawn Schiff Modified Pitchfork (violet P1-P3). The large-cap index found support at the P2 price pivot low and the Lower Parallel (solid violet line) last Tuesday and at the end of last week the index retook the ground above the Cloud model. The volatile sideways chop continues as witnessed by the SPX daily Momentum / Breadth Oscillator. The 45-Day Exponential Moving Average (blue line) of the Oscillator has been flat-lining for weeks with the shorter-term 9-Day Moving Average crossing above and below it. Although the shorter-term Stochastic Momentum Index is turning and hooking higher with the price recovery last week, the series of lower highs remains in place and MACD remains under its signal line as it enters negative territory. The price action does not look like consolidation to a move higher but more like volatile rotation in and out of sectors which smells like distribution as to me. The best-case scenario is that the index may only be stuck in a snow drift.
*For readers who are unfamiliar with the technical terms or tools referred to in the comments on the technical condition of the SPX can avail themselves of a brief tutorial titled, Tools of Technical Analysis and an in-depth comprehensive lesson on Pitchforks is available on my website…
Charts are courtesy of Optuma whose charting software allows the Technical Rankings to be calculated and back tested.
To receive a 30-day trial of Optuma charting software go to…
