ETF Market Trends: ETF Technical Market Condition Report for U.S. Equities

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 |  Includes: AGG, BBH, CEW, DIA, EEM, EWG, EWQ, EWS, EWT, EWU, EWX, EWY, FNIO, FXC, FXI, FXY, GLD, GMF, GUR, ICN, IEV, ITB, IWM, OIH, QQQ, REM, RSX, RTL, SMH, SPY, SWH, TIP, TLT, UNG, USO, VGK, VXX, XHB, XLF, XLK, XLP, XLU
by: J Clinton Hill

During market inflection points, whereby the fundamental investing landscape is impacted by potential or actual changes, corrections of correlating proportions are common.

This week, the investment media has diverted a lot of attention towards China’s tightening and President Obama’s banking reform proposals. With all the hysteria out there, one would think that we have reached the end of a "flat world" as we know it and that there is no place else to go but off the cliff.

It is at these times that it is most important to assess the conditions of the market direction and filter for true investor sentiment by evaluating the supply and demand influences upon price action.

Thus far, January’s results are not apocalyptic and anyone properly diversified should have a similar experience. The month-to-date percentage changes for the major equity benchmark indices are as follow: DJ-30 down @ -2.4%; the S&P 500 down @ -2%; the Nasdaq 100 down @ -3.5%; the Russell 2000 down @ -1.3%; and the VIX up @ +26%. On a relative basis, the tech-laden Nasdaq 100 is proving to be the weakest while the Russell 2000 is the strongest.

In Friday’s trading, a significant number of ETF bellwethers violated their 50 day moving average support levels. This makes me cautious on the vulnerability of the intermediate trend and further potential downside, especially if the bulls fail to quickly regain this key support level for equity, sector, and industry ETFs next week.

Next week is crucial in that it is the last trading week of the month. From a monthly perspective or time-frame, this sets up the potential closing patterns of either a bearish reversal and violation of the December-2009 lows or confirmed support at the December-2009 lows and an opportunity to consolidate monthly prices before making a decisive upward or downward move.

At this juncture, the market is showing that almost all of the exchange traded fund symbols covered in this report below are oversold and many of them are either approaching or nesting at key support levels. Meanwhile, a few others have completed or almost completed important fibonacci retracements.

If the bulls are to attempt any sort of rally next week, one should look towards the above mentioned groups (i.e. those near or at key support levels or key fibonacci retracement levels) for leadership as they are the first to display some signs of resiliency.

Below is my summary technical analysis of exchange traded funds which highly correlate to the U.S. equity exchanges, sector and industry groups of stocks, and individual bellwether stocks:

Equities

  • S&P 500 Trust (NYSEARCA:SPY) & Nasdaq 100 Trust (QQQQ) have violated 50 day moving averages while Russell 2000 (NYSEARCA:IWM) is struggling not to follow suit.
  • Unfortunately, the volatilitiy ETFs do not track the VIX as accurately, so I will use the primary source from the CBOE. The VIX indicator has broken thru the resistance of its 200 day moving average. If this holds, then the market must contend with a whole new can of whipazz!


Sectors

  • Fibonancci Retracements: Telecom (NYSEARCA:IYZ) close to completing a 61.8% retracement from its Nov-2009 low to Jan-2010 high. Utilities (NYSEARCA:XLU) has completed 61.8% retracement from its Nov-2009 low to Dec-2009 high.
  • Bearish Moving Average Breakouts: Industrials (NYSEARCA:XLI) has violated support of 50 sma. Consumer Discretionary (NYSEARCA:XLY) has broken support of 50 sma. Healthcare (NYSEARCA:XLV) has broken support of its 20 sma & 34 ema and heading towards 50 sma for key support test.
  • Support Level Tests: Next support test for Basic Materials (NYSEARCA:XLB) @ $30.88; Energy (NYSEARCA:XLE) @ $55 - $55.28; Financials (NYSEARCA:XLF) @ $13.78; Consumer Staples (NYSEARCA:XLP) @ $25.96. Technology (NYSEARCA:XLK) has violated support of lower channel uptrend line and next support test @ $21.25.

Key Industries

  • Potential Bottoms or Support: TRJ Global Commodities (NYSEARCA:CRBQ) @ $41.54 appears to have successfully tested support @ $40.71. Gold Miners (NYSEARCA:GDX) has taken refuge at its 200 sma. Hard Assets (NYSEARCA:HAP) finding support @ lower uptrend channel line. U.S. Broker Dealers (NYSEARCA:IAI) may be finding support @ 200 sma. S&P Global Infrastructure (NYSEARCA:IGF) may be finding support @ lower uptrend channel line. Nuclear Energy (NYSEARCA:NLR) could be finding support @ its Dec-2009 low.
  • Bearish Moving Average Breakouts: Violating their 50 day sma are Networking Index (NYSEARCA:IGN), Semiconductor Holders (NYSEARCA:SMH), Software Holders (NYSE:SWH), Market Vectors Steel (NYSEARCA:SLX), Metals & Mining (NYSEARCA:XME), Oil Service Holders (NYSEARCA:OIH), Water Resources (NYSEARCA:PHO), DJ Transportation (NYSEARCA:IYT), Market Vectors Coal (NYSEARCA:KOL), Agribusiness (NYSEARCA:MOO). Medical Devices Index (NYSEARCA:IHI), one of the relatively stronger groups, has violated its 20 day sma. Violating their 20 day sma and 34 day ema and converging upon their 50 day sma are Aerospace & Defense (NYSEARCA:ITA), Regional Banks (NYSEARCA:RKH) and Pharmaceutical Holders (NYSEARCA:PPH).
  • Key Support Tests: Global Wind Energy (NYSEARCA:FAN), while trading @ $14.05 and beneath its 200 sma, could find its next support levels @ the June-2009 and July-2009 lows, i.e. respectively $13.44 and $13.47. Global Solar Energy (NYSEARCA:TAN) is trading @ $8.88 and below its 200 day sma, but could find support at its Nov-2009 low @ $8.12. Next support test for DJ Internet Index (NYSEARCA:FDN) @ $22.10 - $22.30.
  • Fibonancci Retracements: Global Shipping (NYSEARCA:SEA) has completed a 50% retracement from its Dec-2009 low to Jan-2010 high.

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