Welcome to The Market’s Compass US Index and Sector ETF Research, Week #492. As at all times it highlights the technical adjustments of the 30 US Index and Sector ETFs that I observe 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 now and again will obtain an excerpt of the complete model. Previous publications could be accessed by paid subscribers by way of The Market’s Compass Substack Weblog.
The Excel spreadsheet under 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 method that makes use of a number of technical concerns that embody however are usually not restricted to pattern, momentum, measurements of accumulation/distribution and relative energy. 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 must be the pattern of the person TRs, both the continued enchancment or deterioration, in addition to a change in route. Secondarily, a really low rating can sign an oversold situation and conversely a continued very excessive quantity could 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 grow to be extra overbought. As well as, if a person TR “can’t “get out of its personal method” whereas the broader market continues to rally it speaks volumes about poor relative energy. A sustained pattern change must unfold within the TR for it to be actionable.
The Whole ETF Rating or “TER”, fell by -10.44% to 913.5 from the week earlier than which was a drop of -4.09% from the week ending Might seventeenth which registered a studying of 1020. Each readings within the TER failed to verify the brand new closing worth excessive on Might seventeenth 5,303.27 and final week”s nominal closing excessive of 5,304.72 (see S&P 500 Index and “TER” chart later within the Weblog) It paid to concentrate to the overbought studying of 1214 on the finish of March. I’ll deliver forth different non-confirmations of the brand new worth highs later within the Weblog.
On every week over week foundation twenty-five ETFs noticed losses of their Technical Rankings, (“TRs”), and 5 had TRs that gained floor. The typical TR loss final week was -3.55 vs. a common TR loss the week earlier than of -1.45. On the finish of final week 9 ETFs have been within the “inexperienced zone” (TRs between 35-50), nineteen ETFs have been within the “blue zone” (TRs from 15.5 -34.5) and two within the “purple zone” (TRs from 0-15) versus the week earlier than when there have been fifteen within the “inexperienced zone” and fifteen have been within the “blue zone” marking a noticeable technical deterioration though the SPX was principally unchanged. To me that implies a destructive considerations concerning breadth.
Understanding the Technical Situation Components and their Week over Week Adjustments
There are eight Technical Situation Components (“TCFs”) that decide particular person TR scores (0-50). Every of those 8, ask goal technical questions. If a technical query is constructive an extra level is added to the person TR. Conversely if the technical query is destructive, it receives a “0”. Just a few TCFs carry extra weight than the others such because the Weekly Development Issue and the Weekly Momentum Think about compiling every particular person TR of every of the 30 ETFs. Due to that, the excel sheet under calculates every Issue’s weekly studying as a % of the doable complete. For instance, there are 7 concerns (or questions) within the Day by day Momentum Situation Issue (“DMC”) of the 30 ETFs (or 7 X 30) for a doable vary of 0-210 if all 30 ETFs had fulfilled the DMC Issue standards the studying can be 210 or 100%.
One technical takeaway can be if the DMC Issue rises to an excessive between 85% and 100% it might counsel a short-term overbought situation. Conversely a studying within the vary of 0% to fifteen% would counsel an oversold situation was creating. This previous week a 24.44% studying of the DMC Issue was registered, or 51 of a doable complete of 210 constructive factors which marked a pointy drop (one other non-confirmation of recent worth highs). The week earlier than, the DMC Issue was 81.43% or 171 of a doable complete of 210 constructive factors.
As a affirmation device, if all eight TCFs enhance on every week over week foundation, extra of the 30 ETFs are enhancing 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 fell vs. the earlier week when seven gained floor and one fell. Want I say extra? I don’t assume so.
The “TER” Indicator is a complete of all 30 particular person ETF rankings and could be checked out as an extra affirmation/divergence indicator in addition to an overbought oversold indicator. As a affirmation/divergence device: If the broader market as measured by the S&P 500 Index (SPX) continues to rally with out a 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 vogue, like a standard A/D Line. As an overbought/oversold indicator: The nearer the “TER” will get to the 1500 degree (all 30 ETFs having a “TR” of fifty) “issues can’t get significantly better technically” and a rising quantity particular person ETFs have grow to be “stretched” the extra of an opportunity of a pullback within the SPX Index, On the flip facet 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 transferring common (purple line) smooths the risky “TER” readings and analytically is a greater indicator of pattern.
On a Wow foundation the SPX Index rose lower than two factors to finish final week at 5,304.72. As shall be seen later within the Weblog that belies the nasty dump final Thursday. Of extra technical significance is that the Whole ETF Rating, or TER, fell over the previous two weeks, down -10.44% and -4.09% respectively, in what’s a budding non-confirmation of the current worth highs in live performance with the 13-Week Exponential MA rolling over. It might be untimely to declare that this alerts that even a short-term high is in place however it’s an early technical concern. Extra on that topic later in “Ideas on the short-term technical situation of the SPX Index” later on this week’s Weblog.
The Weekly Common Technical Rating (“ATR”) is the typical Technical Rating of the 30 US Index and Sector ETFs we observe. Just like the TER, it’s a affirmation/divergence or overbought/oversold indicator.
For the second time because it was first capped the value advance in late April the Higher Warning Line (inexperienced dashed line) of the Schiff Modified Pitchfork (inexperienced P1 via P3) has confirmed to be resistance once more the previous two weeks giving me confidence in my alternative of that pitchfork variation. On the threat of “beating a lifeless horse” (with apologies, that is probably not politicly right) there are two extra non-confirmation alerts on the 2 backside panels on the Weekly Cloud chart above. These are; the US Common Technical Rating (middle panel) has rolled over from a decrease excessive (that isn’t a shock contemplating the autumn within the TER mentioned above) and MACD (decrease panel) has not confirmed the nominal new worth excessive (each highlighted with yellow dashed strains). Simply two extra probably short-term regarding technical non-confirmation alerts however it’s too early to inform if it will deliver the chickens house to roost however the secondary technical alerts are there and shouldn’t be ignored.
*Doesn’t embody dividends
Twenty-six of the US ETFs we observe on this weblog fell on an absolute foundation final week and solely three ETFs gained floor. The typical absolute loss final week was -1.68% vs. a slight achieve of +0.57% the week earlier than and vs. a de minimis +0.03 achieve within the SPX Index.
*Of curiosity to scalpers, merchants, and technicians
In early Might when the SPX Index regained the bottom above the Day by day Cloud Chart, I utilized a Schiff Modified Pitchfork (violet P1 via P3). Since every week in the past final Wednesday costs have been capped by the Higher Parallel (strong violet line) of that pitchfork. Final Thursday the index produced a nasty exterior day or in candle parlance an engulfing candle however so far it has not unfolded right into a full-fledged reversal. What has developed has been a pointy flip in my US ETF Day by day Momentum / Breadth indicator which has fallen sharply regardless of costs holding close to to the current highs. MACD has additionally not confirmed the current worth highs and is starting to roll over. I consider that odds favor a level of backing and filling that can drive costs to key short-term assist on the Median Line (violet dotted line) of the pitchfork, the Kijun Plot (inexperienced line) and the Cloud.
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 short tutorial titled, Instruments of Technical Evaluation or the Three-Half Pitchfork Papers that’s posted on The Markets Compass web site…
https://themarketscompass.com
Charts are courtesy of Optuma.
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