Welcome to The Market’s Compass US Index and Sector ETF Study, Week #595. 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 fell -15.56% last week to 826 for the fourth week in a row from the recent pinnacle of 1075 for the week ending April 17th, which was the best level since February 27th (1103.5).
Ony five ETFs registered increases in their TRs last week, and twenty-five ETF TRs fell. Of those twenty- five, seven dropped double digits. Thirteen ETF TRs ended the week in the “green zone” (TRs from 35 to 50), eleven ended the week in the “blue zone” (TRs from 15.5 to 34.5), and six were in the “red zone” (TRs between 0 and 15). The previous week there were sixteen TRs in the “green zone”, eleven were in the “blue zone”, and three were in the “red zone”. The average TR loss on the week was -5.78, adding to the week before average TR loss of -0.88.
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.
Aside from the recent tepid Relative Strength Momentum in the VanEck Vectors Semiconductor ETF (SMH) it still remained in the pole position on a Relative Strength basis vs. the SPX at the end of last week and the preceding three weeks (see the Tabulation Table below). Despite a slowing of downside negative Relative Strength Momentum last week, the iShares Dow Jones U.S. Home Construction Index Fund ETF (ITB) registered the worst Relative Strength Ratio reading (93.24) of the thirty ETFs I track in the Study, at weeks end. The VanEck Vectors Junior Gold Miners ETF (GDXJ), which fell into the Lagging Quadrant three weeks ago, exhibiting downside negative Relative Strength Momentum, turned higher and during the second half of last week it gathered enough upside positive Relative Strength Momentum with the best reading (102.02) of the Sweet Sixteen to enter the Improving Quadrant.
The U.S. Index and Sector ETFs Relative Strength and Relative Strength Momentum “Tabulation Table”.
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. Both the Relative Strength Ratio and Relative Strength Momentum number are, although not shown on the table, are percent valuations vs. the benchmark at weeks end. 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.
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 all eight TCFs fell confirming the broad-based technical weakness at the end of the week.
The Weekly Average Technical Ranking (“ATR”) is the average Technical Ranking of the 30 US Index and Sector ETFs we track. It is a confirmation/divergence as well as an overbought/oversold indicator.
The second Upper Warning Line (UWL2) capped last week’s rally in the S&P 500 Index endorsing the validity of the vector of the Schiff Modified Pitchfork (gold P1 through P3). Despite the new high, last week’s Doji suggests that a measure of indecision has creeped into market participants’ faith regarding an immediate continuation of the rally from the early April lows. The 8-Week Stochastic Momentum Index reveals that the large-cap index is overbought and stretched as well as the US Average Technical Ranking which has, after failing to confirm the rally in prices to a new closing high on a weekly basis (red dashed line), has fallen back below both the longer-term 45-Week EMA (blue line) shorter-term 9-Week SMA (red line). It has been folly to argue with impulsive rally in the SPX, but it appears that a correction of a larger degree than we have witnessed since April is in the cards.
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…
Be the first to comment