Welcome to this week’s edition of The Market’s Compass US Index and Sector ETF Study, Week #522. As per our usual schedule, we delve into the technical movements of 30 US Index and Sector ETFs that are closely monitored each week, with updates typically shared every three weeks. For those interested in exploring past editions, they’re all available to our paid subscribers on The Market’s Compass Substack Blog.
Given the Christmas, Hanukkah, and New Year holidays, this will be the final comprehensive study for 2024. I want to extend heartfelt thanks to both our free and paying subscribers for your engagement and feedback throughout the year. This week’s detailed analysis will be sent to all subscribers, wishing a joyful holiday season ahead!
We’ve streamlined the report by omitting the repetitive descriptions of our proprietary indicators. However, comprehensive reviews of these indicators can still be found on The Market’s Compass website.
If you’re curious about how the objective U.S. Index and Sector ETF Individual Technical Rankings are put together, make sure to check out the MC’s Technical Indicators section on our website under “us etfs.”
Last week, the Total ETF Ranking, or “TER”, saw a notable decline of 24.16%, dropping from 792.5 to 601. Just four weeks earlier, the TER had achieved its best reading since the March 29th all-time high of 1,215. Despite entering overbought territory, this high was a confirmation of the record weekly close on November 29th. However, declining steadily for three consecutive weeks raises some eyebrows.
By the close of last week, 29 of the ETFs showed losses according to their Technical Rankings, with one holding steady. Eight ETFs experienced double-digit losses. Among the technical zones, only four ETFs stayed in the “green zone” (TRs between 35-50), while thirteen were in the “blue zone” (TRs from 15.5 -34.5), and another thirteen fell into the “red zone” (TRs between 0-15). This marked a significant week-over-week deterioration from the previous session, where the figures were notably stronger.
For those interested in the methodology of The Technical Condition Factors, additional information is available on the MC’s Technical Indicators page under “us etfs.”
From a technical perspective, the DMC Factor, or DMCTF, reached just 9.52% last week, well within oversold territory. This suggests a potential short-term overbought situation when the range is between 85% and 100%, while an oversold condition is indicated by a range of 0% to 15%.
When utilizing these TCFs as a means of confirmation, if all eight TCFs improve week over week, it generally indicates a more widespread market uptrend, akin to an advance/decline measure. Conversely, a decline in all eight TCFs supports a broader market downturn. Last week was proof of this pattern, with seven TCFs declining and one remaining unchanged, supplementing the broader market’s downward trend.
A deep dive into The Total ETF Technical Ranking Indicator can be done on our website under the “us etfs” section.
Before the recent significant dip in the TER, this technical measure had just confirmed a high relative to the December 6th closing price. However, the 13-Week Exponential Moving Average did not mirror this, showing a downward trend since then.
The Weekly Average Technical Ranking, or “ATR,” serves as an invaluable tool. It averages out the Technical Ranking across the 30 monitored US Index and Sector ETFs to provide a greater sense of market confirmation or divergence, as well as indicate potential overbought or oversold conditions.
Following an overbought period similar to the TER, the ATR has taken a sharp nosedive through both moving averages into oversold territory. However, on a brighter note, the large-cap index managed to keep support at the Median Line of the Standard Pitchfork throughout the week, even though the Weekly MACD is teetering close to breaching its signal line. For more insights, watch out for our section on “Thoughts on the short-term technical condition of the SPX Index”.
It’s worth noting that none of the thirty US ETFs we track escaped losses last week. The average downturn was 4.12%, adding to the prior week’s 2.03% decline. While only five ETFs managed to beat the S&P 500 Index’s 1.99% loss in relative terms, the rest of the pack fell behind.
In the midst of the turmoil, the S&P 500 made a significant move last Wednesday, slicing through key support levels. Though it momentarily rebounded, it faced resistance, and by Friday, large-cap stocks were closing below important thresholds. Despite the Daily Momentum/Breadth Oscillator falling into oversold levels suggesting a potential price bounce, the momentum indicators hint that it could be nothing more than a temporary rebound.
For those who find some of these technical tools a bit challenging to unpack, a concise tutorial entitled ‘Tools of Technical Analysis’ is available for your reference.
We are grateful to Optuma for their charting software that enables the calculation and backtesting of these Technical Rankings. A 30-day trial of the software can be accessed at their website.
Wishing everyone fruitful investments and a wonderful holiday season!
