ETF Trends: Equity Bulls Charge Forward Where Bearish Angels Fear to Tread

Anyone familiar with my work knows that my investment process adheres to the disciplines of both technical and fundamental analysis. In fact, I often compare using only one without the other to investing with one arm tied behind the back. This ETF Trend Analysis report deals primarily with the technical condition of the market, but I will digress slightly this Wednesday.

Before doing so, I want to quickly highlight the overbought/oversold breadth of the market condition. Of the 209 industry groups that Hillbent tracks, 83% are overbought and 0% are oversold. The Hillbent 3000 universe (which comprises the top 3000 stocks in terms of market cap, excludes ETFs, and includes ADRs to represent well over 95% of the aggregate market cap for U.S. equities) shows that 59% of stocks are overbought and 4% are oversold.

To get a full appreciation of the complete impact of the tailwind pushing the equity market’s backside, a quick analysis of the S&P 1500 reveals 75% of its components flashing proprietary buy signals and trending upward. However, based upon Hillbent’s proprietary fundamental rankings, 76% of the S&P 1500 components are rated less than a buy, i.e. 57% neutral or "C"; 14% sell or "D"; and 5% strong sell or "E".

The point I would like to make is that sometimes the divergence between market technicals and fundamentals becomes irrationally exaggerated and being able to identify and distinguish this is very important for the purposes of portfolio risk management. The market likes to lull as many participants as possible into complacency before executing one of its patented Pearl Harbor stealth-like corrections to the upside or downside whenever appropriate.

It is against this backdrop that we have equity bulls charging forward where bearish angels fear to tread. Nevertheless, the trend is a friend and the Russell 2000 (IWM) got more than a little help Wednesday as its long-term trend was upgraded to lateral.

This is significant because if the bulls can initiate a new primary uptrend, approximately 63% of the Russell 2000 components have a short interest ratio exceeding 5 days and this alone could be another potentially powerful bullish catalyst for the market.

ETF Trend Monitor (07-22-2009)

Equity ETFs	Short-term	Intermediate	Primary
DIA (DJ Industrials)	up	up	down
SPY (S&P 500)	up	up	down
QQQQ (Nasdaq 100)	up	up	up
IWM (Russell 2000)	up	up	lateral
Sector ETFs	Short-term	Intermediate	Primary
XLY (Consumer Discrtn)	up	up	up
XLP (Consumer Staples)	up	up	up
XLE (Energy)	up	up	down
XLF (Financials)	up	up	down
XLV (Health Care)	up	up	lateral
XLI (Industrials)	up	up	down
XLB (Materials)	up	up	lateral
XLK (Technology)	up	up	up
IYZ (Telecom)	up	up	down
XLU (Utilities)	up	up	down
Commodities	Short-term	Intermediate	Primary
GLD (Gold)	up	up	up
SLV (Silver)	up	lateral	lateral
DBB (Base Metals)	up	up	up
JJC (Copper)	up	up	up
USO (Oil)	up	up	down
UNG (Natural Gas)	up	down	down
UGA (Gasoline)	up	up	lateral
DBC (Commodities)	up	up	lateral
DBA (Agriculture)	down	down	down
Forex	Short-term	Intermediate	Primary
UUP (U.S. Dollar)	down	down	down
FXE (Euro)	up	up	up
FXY (Japanese Yen)	up	up	up
FXB (British Pound)	lateral	up	up
FXC (Canadian Dollar)	up	up	up
FXA (Australian Dollar)	up	up	up
FXM (Mexican Peso)	up	up	lateral
BZF (Brazilian Real)	up	up	up
CYB (Chinese Yuan)	lateral	lateral	lateral
ICN (Indian Rupee)	lateral	lateral	n/a
XRU (Russian Ruble)	up	lateral	n/a
Bonds	Short-term	Intermediate	Primary
SHY (1-3 Yr Tsy)	lateral	lateral	lateral
IEF (7-10 Yr Tsy)	lateral	down	down
TLT (20 Yr+ Tsy)	down	down	down
TIP (Tsy Inflation Protect)	up	lateral	lateral
AGG (Investment Grade)	lateral	up	up
JNK (Hi Yld Bonds)	up	up	up
HYG (Hi Yld Corp)	up	up	up
MUB (Nat’l Muni Bond)	lateral	lateral	lateral
Real Estate	Short-term	Intermediate	Primary
IYR (DJ US Real Estate)	up	up	down
XHB (Homebuilders)	up	up	lateral
ITB (Home Construction)	up	up	lateral
FIO (Industrial Office)	up	up	down
REM (Mortgage Reits)	up	up	lateral
REZ (Residential Index)	up	up	lateral
RTL (Retail Index)	up	up	down

Market Momentum Monitor (07-22-2009)

Market Momentum	20-Day MA	50-Day MA	200-Day MA
Today	83.29%	78.96%	83.22%
Yesterday	82.98%	77.83%	82.29%
Last Week	79.18%	70.99%	79.41%
Last Month	23.97%	54.22%	65.49%

Disclosures: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

[Prudent Man CFA]

Confidence is nice. Rationality is better.

2009 Jul 23 10:12 AM

[Fitz919]

This "bull market" is based on bull.

I've been looking at initial jobless claims numbers. What we are all told is the seasonally adjusted number, but the unadjusted number is there in the report on the Dept of Labor webpage. Last week we were all told 522K, the actual number was 667,534. Today we were told 554K, the actual number is 580,944. This is just some of the "bull" I'm talking about.

The monthly number has a "births and deaths" number added in that makes the monthy number just as useless.

Someone should stop by a dairy farm and pick up a load of bull____ and dump it on the doorstep of the Dept of Labor to make what they are doing obvious to everyone.

2009 Jul 23 12:37 PM

[Gary Gallo]

Apparently the real estate scan should have been looking at DRN and URE. The Dow has just broken out today and remains 900 points off the old high. The summation index has just moved above the zero line. We are overbought short term but we are also getting lots of intermediate and long term buy signals. Many new breakouts. The party should continue for a while. I went bullish on 7/12 here on the forum. Of course it is earning season, any dip, maybe into last weeks gap will prove to be a buying opportunity. Lots of strength in USD and TNA.

2009 Jul 23 05:44 PM

[AndrewBaker]

If this market keeps going higher, all bets are off.

The lunatics will most definitely have taken over the asylum.

2009 Jul 24 11:06 AM