Major Indexes Continue To Be Outperformed By Energy & Metals

ETFs like XOP (S&P Oil & Gas Exploration & Production), XME (S&P Metals & Mining), and XLU (Utilities) have been experiencing capital inflows. At the same time, other ETFs such as DIA (30-Industrials), SPY (500-Large Caps), IWM (2000-Small Caps), IYT (Transports), and QQQ (100-Nasdaq Largest Non-Financial) are still in the red for the year.

Our positions in energy and precious metal ETFs netted us a positive return, while our recent trades in the major stock index ETFs had already booked partial position profits, with the remainder of the positions stopping out for a small break-even profit.

As we experience record inflation numbers reported and central banks raising their lending rates, we are keeping our cash ready and closely monitoring key ETF sectors as compared to the major stock index benchmarks for clues regarding our location within the overall economic cycle.

SPY – SPDR S&P 500 ETF TRUST – DAILY SECTOR COMPARISON CHART

Major Indexes SPY

TheTechnicalTraders – TradingView

TACTICAL ETFs FOR ALTERNATIVE STRATEGIES

From time to time, we get questions from our subscribers regarding inverse and leveraged ETFs. Inverse and/or leveraged ETFs are not appropriate for everyone. However, for some experienced traders, these tactical ETFs can provide alternative strategies for use in a bear market.

An inverse ETF is an exchange-traded fund (ETF) constructed by using various derivatives to profit from a decline in the value of an underlying benchmark. Inverse ETFs allow investors to make money when the market or the underlying index declines, but without having to sell anything short.

A leveraged exchange-traded fund (ETF) is a marketable security that uses financial derivatives and debt to amplify the returns of an underlying index. While a traditional exchange-traded fund typically tracks the securities in its underlying index on a 1:1 basis, a leverage ETF may be structured for a 2:1 or even a 3:1 ratio.

These ETFs listed below track the underlying S&P 500 benchmark that represents 500 US large caps as selected by S&P’s Index Committee. These ETFs are examples of both inverse and leveraged ETFs:

  • SPY vs. SH (1:1 or 1x leverage) – SPY (Bull) is the most recognized ETF and is typically listed in the top ETFs for the largest AUM and greatest trading volume. SH (Bear) provides 1:1 inverse exposure to the S&P 500.
  • SSO vs. SDS (2:1 or 2x leverage) – SSO (Bull) seeks a daily 2x return of the S&P 500. SDS (Bear) provides 2:1 inverse exposure to the S&P 500.
  • UPRO vs. SPXU (3:1 or 3x leverage) – UPRO (Bull) seeks a daily 3x return of the S&P 500. SPXU (Bear provides 3:1 inverse exposure to the S&P 500.

SPY – SPDR S&P 500 ETF TRUST – DAILY S&P 500 COMPARISON CHART

The following chart gives us a visual of how the ETFs mentioned above are performing against each other over the past 15-months. It should be noted that inverse ETFs carry unique risks that traders should be aware of before participating in them. Some of the risks associated with inverse ETFs are compounding risk, derivative securities risk, correlation risk, and short sale exposure risk.

Major Indexes SPY

TheTechnicalTraders – TradingView

KNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDED

It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and in the last six trades we entered in March, all have now been closed at a profit! Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.

Successful trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.

WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?

We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

 

Mid & Small Cap Indexes May Surge Higher

My analysis suggests both the Small and Mid Cap Indexes may have moved excessively lower over the past 30+ trading days. They may be poised for a unique opportunity and a substantial price rally if the global markets continue to move away from extreme risk events.

As the US Fed and global central banks position to combat inflation while war tensions build near Ukraine, I believe the US Small and Mid Cap Indexes are uniquely undervalued and ready for a potential move higher. The recent recovery in the US major indexes may be evidence of strong bullish price momentum underlying the US Major Indexes. I believe that foreign capital is moving into various US assets to avoid foreign market/currency risks. The US Small and Mid Cap Indexes seem like perfect opportunities for this capital deployment.

IWM May Rally 12 to 14% – Targeting $238 to $240

This Weekly IWM chart highlights a support level near $191.00 and a recent Three River Morning Star bottom reversal pattern near $194.40. It also highlights the previous range-based trading and dual Pennant/Flag setups using shaded BLUE and YELLOW Rectangles.

I believe IWM has a solid potential to rally back to near the $220 level before finding resistance (+7.25%). If this bullish price momentum continues, IWM may rally to levels above $238 to $240.

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The global markets may have recently focused too much on the US Fed and Global Central Banks while missing the underlying strength of the US economy. Consumers are still spending, and the US Fed has yet to make any substantial adjustments to rates or balance sheets.

These recent lows may provide an excellent opportunity for traders to capitalize on a “reversion price move” soon. The only way to navigate and capitalize on these price swings is to stay focused on Technical Analysis and strategic opportunities for trades when they occur.

What Trading Strategies Will Help You to Navigate Current Market Trends?

Learn how I use specific tools to help me understand price cycles, setups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase. This may start a revaluation phase as global traders identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern drive traders/investors into Metals.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

 

IWM Rally May Find Brief Resistance Near $244~$245 Before Rocketing Higher

Watching the US Stock Market start a big rally phase after the October 12th base/bottom raised a few questions in my head because the Small-Caps/Mid-Caps were not showing a strong upward price trend like the rest of the market. Even though I called this upward price trend many weeks before it happened, I was surprised that the Small-Caps/Mid-Caps lagged the S&P500, Dow Jones, and NASDAQ as the rally initiated.

I wrote about this setup in the IWM recently and detailed my expectations in these articles/posts:

Within my August 25, 2021 article, I was very clear that the $207 level was acting as critical support as IWM transitioned into the APEX of the dual Price Flag formation.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/11/ArticleQuote-1.png

The $207 low, which was set on March 5, 2021, established a unique price low that traders could use as a “make-or-break” level in the event of a bigger breakdown in price. If that $207 level was breached by a strong downside price trend, then I would have expected an even bigger breakdown event to take place.

Watch For Resistance Near $245 On IWM

In early October, IWM started to narrow into a price range between $217 and $225. Then, on October 14, 2021, a mild upside price gap was set up. I expected more volatility in price at this time as the other US major indexes were starting to rally quite strongly. IWM started a bigger upside price trend nearly two weeks later, near October 29, 2021, and started a big breakout rally phase in early November 2021.

Long-term resistance, near $244~$245, may briefly pause this rally before price levels continue higher. This rally phase is showing very strong volume and accumulation as traders pile into the Christmas Rally trends.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/11/Chart_21-11-05_IWM_D.png

Extended Congestion In Price Suggests $263~$264 Is Upside Target For IWM

When I look at the extended sideways price congestion phase on this Weekly IWM chart, below, I typically expect the price to break the congestion phase by a 100% range of the congestion. Using this theory, I believe the $263~$264 level will become the next immediate upside price target for IWM as this rally continues.

Another key facet of the extended congestion phase is the longer price stays in a congestion phase, the more volatile the breakout/breakdown in price may become. At this point, after more than 8 months of congestion, we may see IWM rally well into Q1:2022 and quite possibly rally well above my $263~$264 target level.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/11/Chart_21-11-05_IWM_W.png

In closing, the most important aspect of this rally in the Russell 2000/IWM is that we are now seeing a very broad US stock market rally phase set up ahead of the typically strong Christmas Rally to close out the year. This is very exciting and opportunistic for traders that were positioned for a big rally.

My analysis suggests this rally may continue into early January 2022 – where my cycle analysis suggests a change in price trend may initiate after January 18th or so. Follow my research and learn how I use specific tools to help me understand price cycles, set-ups, and price target levels. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe.

I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

Please take a minute to visit www.TheTechnicalTraders.com to learn about our Total ETF Portfolio (TEP) technology and it can help you identify and trade better sector setups. We’ve built this technology to help us identify the strongest and best trade setups in any market sector. Every day, we deliver these setups to our subscribers along with the TEP system trades. You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

Chris Vermeulen

www.TheTechnicalTraders.com

For a look at all of today’s economic events, check out our economic calendar.

Best Stocks, Crypto, and ETFs to Watch This Week

Facebook Inc. (FB) has sliced and diced shareholders since September, dropping more than 15% from an all-time high before bouncing strongly at a 19-month trendline on Oct. 12. It jumped more than 20 points off the low into Wednesday of last week and then plummeted after Snap Inc. (SNAP) warned about the revenue impact of new iPhone ad tracking blockers. The stock is back to trendline support, just in time for Monday’s post-market earnings report.

General Motors Corp. (GM) profits have been hurt by persistent supply disruptions so far in 2021, with the automaker forced to idle factories despite the enthusiastic reception of new models and a major commitment to electric vehicles. The stock bounced at an 8-month low in August and closed half the distance back to June’s all-time high in the 60s, before the rally stalled about two-weeks ago. All eyes are now focused squarely on Wednesday’s post-market report and further comments about supply issues.

Dow component Chevron Corp. (CVX) was left for dead in 2020, with the election of an environmentally friendly president heralding in an era of alternative energy. The crude oil futures market promptly took off for the heavens, reacting to political pressure on drilling and production that could trigger worldwide shortages until clean energy can replace fossil fuels, which might take a decade or more. Integrated oil and gas companies reacted slowly to the rally but are now getting bought aggressively and could hit new highs in 2022.

Bitcoin bottomed out at 40,000 in September after dropping nearly 25% and turned sharply higher, heading in a straight line into the April high near 65,000. The digital giant broke out for a single session last week before turning tail in a decline that’s typical when financial instruments test prior highs. The reversal left behind a weekly shooting star candlestick that predicts at least several weeks of relative weakness before the cryptocurrency can successfully break out to new highs.

The Russell-2000 ETF (IWM) more than doubled in price into March 2021 before topping out above 233. Price action since that time has carved a narrow symmetrical triangle that, when taken together with the vertical uptick, has completed a bullish ‘flag at the top of a flagpole’ that predicts a measured move equal to the prior rally. Small caps have just entered their most seasonally favorable time of year, raising odds for a breakout that could last through the first quarter of 2022.

For a look at this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

These 7 Sectors Saw Big Selling Last Week

While that’s yucky, it’s a good idea to see which sectors were impacted the most. That’s why I look at Big Money buying and selling to give me insights. Big Money activity looks at outsized buying and selling in stocks and ETFs. As I’ll show you, it can reveal a lot.

First, let’s begin at the top and work our way down. Let’s visualize the flow of Big Money and the current trend. To do that, below is the MAPsignals Big Money Index. The blue line has been lifting – pointing to a bullish setup:

Chart, histogram Description automatically generated

Source: www.mapsignals.com

You can see that the BMI has broken out to a multi-week high.

Inside of the BMI are the daily buys and sells. Below you can see why IWM has been range bound. It’s a lot of rotational action. I’ve shaded this action:

Chart, histogram Description automatically generated

Source: www.mapsignals.com

But let’s go deeper. Inside of all of those buys and sells are sectors. And each week, I look at what’s getting bought and sold in a big way.

To visualize it for you, below are the total counts of buys and sells in stocks last week, September 20 – 24. If a group saw outsized activity, it’s shaded in yellow. Those are the sectors that saw 25% or more of its universe either bought or sold.

Seven sectors felt the pain: Financials, Communications, Discretionary, Industrials, Staples, Materials, & Utilities:

Source: www.mapsignals.com

That’s a lot of selling. The only area that saw outsized buying was Energy. Additionally, there was healthy buying in smaller-cap companies.

So, the question remains, is there an opportunity here? Well, remember when I told you how nasty Monday’s selloff was? Check out this following chart which isolates big sell days. I’ve used SPY as the overlay.

I’ve shaded Monday’s selloff and prior big sell days in orange. Do you notice anything?

Source: MAPsignals, FactSet

As you can see, big sell days tend to line up with near-term lows for stocks. I even discussed this last week prior to Monday’s rough ride.

The opportunity I’m seeing in the data is a bullish undercurrent in small-cap stocks…the quality kind. Those are the companies with healthy sales and earnings growth.

It wouldn’t surprise me one bit to see small-caps outperform mega-caps in the near-term.

Here’s the bottom line:

Last Monday saw chunky selling across the board. But those big sell days tend to setup a near-term bounce.

A rising Big Money Index is new data. And it’s being led by quality buying in small-caps. That’s where I believe the near-term opportunity lies.

Disclosure: the author holds no position in SPY, QQQ, DIA, or IWM at the time of publication.

Learn more about the MAPsignals process here: www.mapsignals.com

Disclaimer

https://mapsignals.com/contact/

For a look at all of today’s economic events, check out our economic calendar.

3 Sectors See Outsized Selling

And today we’ll take a look at where markets sit. Under the surface, there’s a lot more going on than meets the eye. So, let’s take it from the top.

While major indexes like the S&P 500, DJIA, and NASDAQ are at or near all-time highs, many stocks aren’t keeping up. And a great way to see that is by looking at the MAPsignals Big Money Index. It tracks unusual trading in stocks, mapping Big Money buys and sells.

If the index is lifting, stocks are getting bought. If it’s falling, like now, that means man stocks are getting sold. Have a look:

ChartDescription automatically generated with low confidence
Source: www.mapsignals.com

Clearly something is going on if the index is falling hard. Looking at last week, 3 sectors saw outsized selling: Technology, Staples, & Healthcare.

A great way to visualize this is to look at the sector table below. This is last week’s buying and selling data mapped by sector. Shaded in yellow off to the right is what’s important. If a sector saw more than 25% of its universe get bought or sold, it’s flagged.

Have a look at August 9th – 13th’s data:

TableDescription automatically generated with medium confidence
Source: www.mapsignals.com

And on the flipside, you can see that Materials saw buy activity.

So, you may be asking yourself why am I telling you this? Well, I’ve learned that it’s important to get a whole picture of the market. What the major indexes do is only part of the story.

Taking a deeper dive can help investors pinpoint opportunity. Right now, signs point to volatility rising for stocks as the Big Money Index flashes a warning. And as you can see above, certain sectors are under pressure more than others.

I think a lot of this mixed action is due to low liquidity often found in summer. I’m waiting for the BMI to start rising…that will suggest that many of these pain points are firming.

But that isn’t today.

Here’s the bottom line: Under the surface of the market is a clear picture. Many stocks are pulling back. That can signal weakness ahead for markets. Technology, Staples, and Healthcare stocks saw outsized selling last week.

Keep those areas on your radar. Eventually the buyers will step back in…but, for now, signs point to near-term weakness ahead.

For long-term investors, look for buying opportunities in the weeks ahead.

Disclosure: the author holds no position in SPY, QQQ, DIA, or IWM at the time of publication.

Learn more about the MAPsignals process here: www.mapsignals.com

Disclaimer