The Bear Market Rally Continues As The Weekly Charts For The 5 Equity ETFs Are Positive

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Includes: DIA, IWM, IYT, QQQ, SPY
by: Richard Suttmeier
Summary

The Diamonds ETF is above my semiannual pivot at $243.47 with my monthly and annual risky levels at $255.89 and $257.94, respectively.

The Spiders ETF held its 200-week simple moving average at its Christmas low of $233.76 then rebounded to my semiannual risky level of $266.14 last week.

The QQQ ETF remains below my semiannual and annual risky levels at $167.53 and $169.27, respectively.

The transports ETF was the key to stabilization as its 2019 low held its semiannual value level at $159.63 as 2019 began.

The Russell 2000 ETF remains below all 2019 risky levels that begin with my semiannual risky level at $149.77.

The bear market rally extended last week and now all five major equity ETFs have positive weekly charts.

Today, I show the weekly charts with their key technical levels.

Unwinding the Federal Reserve balance sheet remains a drag: As of Jan. 16, the balance sheet was marked at $4.050 trillion, down $450 billion since the end of September 2017 when it was $4.5 trillion. The first drain of 2019 was just $2 billion and the second was $6 billion. This will likely grow to $30 to $50 billion in January given the number of maturing U.S. treasuries that mature on January 15 and January 31. Last week as the drain was $6 billion, the yield on the U.S. Treasury note rose from 2.660% to 2.799%.

Fed Balance Sheet As Of Jan. 16

My call for the FOMC: (unchanged from last week) Look for the Federal Reserve to raise rates in June and December to end 2019 with a “normal” federal funds rate of 2.75% to 3.00%. The Fed will be draining $30 to $50 billion from the balance sheet each month as treasuries mature.

My market call: The bear market rally for stocks continues as all five equity ETFs now have positive weekly charts. Diamonds is above one pivot and Spiders tested on pivot. My higher levels remain risky levels at which to begin to reduce holdings. Remember that all five ETFs were in bear market territory at their Christmas lows, down 20% or more from their 2018 all-time intraday highs. Some say that the S&P did not decline by 20%, but it’s wrong to measure this from a closing high.

Another reason for the December crash was margin calls. Well before the December crash, I warned investors to eliminate owning stocks on margin. A margin call is forced selling which always happens at a tradeable low. Look at the decline in margin debt on this graph.

Margin Debt As Of Dec 2018

Here’s Today’s Scorecard

Scorecard For The Five Equity ETFs

SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA)

Weekly Chart Foe Diamonds Courtesy of MetaStock Xenith

Diamonds have been below a “death cross” since Dec. 19 with DIA between the 50-day and 200-day simple moving average now at $243.42 and $249.70, respectively. Investors following this indicator should reduce holdings at the 200-day SMA. DIA set its all-time intraday high of $269.28 on Oct. 3 and is 8.3% below that level. DIA is 13.9% above its 2018 low of $216.97 set on Dec. 26.

The weekly chart for Diamonds is positive with the ETF above its five-week modified moving average at $241.56. DIA is above its 200-week simple moving average or “reversion to the mean” at $207.73. The 12x3x3 weekly slow stochastic reading ended last week rising to 34.44, up from 26.19 on Jan. 11. My semiannual pivot is $243.47. Reduce holdings on strength to my monthly and annual risky levels at $255.89 and $257.94, respectively.

SPDR S&P 500 Trust ETF (NYSEARCA:SPY)

Weekly Chart For Spiders Courtesy of MetaStock Xenith

The Spiders ETF has been under a “death cross” since Dec. 7 with SPY between the 50-day and 200-day SMAs now at $262.36 and $273.85, respectively. Investors following this signal should reduce holdings on strength to the 200-day SMA. SPY set its all-time intraday high of $293.94 on Sept. 21 and is 9.3% below that level. SPY is 14% above its 2018 low of $233.76 set on Dec. 26.

The weekly chart for Spiders is positive with the ETF above its five-week modified moving average at $260.62. SPY is above its 200-week simple moving average or “reversion to the mean” at $235.48 after this average held at $234.71 during the week of Dec. 28. The 12x3x3 weekly slow stochastic reading ended last week rising to 35.02, up from 25.65 on Jan. 11. My semiannual pivot is $266.14. Reduce holdings on strength to my monthly and annual risky levels at $280.09 and $285.86, respectively.

Invesco QQQ ETF (NASDAQ:QQQ)

Weekly Chart For QQQ Courtesy of MetaStock Xenith

QQQ has been below a “death cross” on Dec. 3 with the ETF between its 50-day SMA and 200-day SMA now at $161.67 and $171.33, respectively. Investors following this signal should reduce holdings on strength to the 200-day SMA. QQQ set its all-time intraday high of $187.53 on Oct. 1 and remains in correction territory 11.6% below this level. QQQ is 15.5% above its 2018 low of $143.46 set on Dec. 24.

The weekly chart for QQQ remains positive with the ETF above its five-week modified moving average at $161.19. QQQ is above its 200-week simple moving average or “reversion to the mean” at $134.46. The 12x3x3 weekly slow stochastic reading ended last week rising to 34.58, up from 25.30 on Jan. 11. Reduce holdings on strength to my semiannual, annual and monthly risky levels at $167.53, $169.27 and $180.91, respectively.

iShares Transportation Average ETF (NYSEARCA:IYT)

Weekly Chart For Transports ETF Courtesy of MetaStock Xenith

IYT formed a “death cross” on Nov. 26 with the ETF now between its 50-day and 200-day SMAs now at $178.08 and $190.68, respectively. Investors following this signal should reduce holdings on strength to the 200-day SMA. The transports ETF set its all-time intraday high of $209.43 on Sept. 14 and remains in correction territory 14.1% below the high. IYT is 15.9% above its 2018 low of $155.24 set on Dec. 24.

The weekly chart for IYT remains positive with the ETF above its five-week modified moving average at $175.63. The ETF is above its 200-week simple moving average or “reversion to the mean” at $164.03. The 12x3x3 weekly slow stochastic reading rose to 27.09 last week, up from 20.41 on Jan. 11. My key for calling a bear market rally came from this ETF. My semiannual value level held during the week of Jan. 4, and the close that week was above the “reversion to the mean” at $163.89. This clearly shows how chart discipline works. Buy weakness to my semiannual value level at $159. 63 and reduce holdings on strength to my monthly, quarterly and annual risky levels at $189.29, $195.81 and $196.35, respectively.

iShares Russell 2000 ETF (NYSEARCA:IWM)

Weekly Chart For Russell 2000 ETF Courtesy of MetaStock Xenith

IWM has been below a “death cross” since Nov. 13 with the ETF now between the 50-day and 200-day SMAs now at $143.91 and $158.31, respectively. Investors following this signal should reduce holdings on strength to the 200-day SMA. This ETF set its all-time intraday high of $173.39 on Aug. 31 and remains in correction territory 15% below the high. IWM is 17.1% above its 2018 low of $125.81 set on Dec. 26.

The weekly chart for IWM remains positive with the ETF above its five-week modified moving average at $143.27. The ETF is above its 200-week SMA or “reversion to the mean” at $134.90. The 12x3x3 weekly slow stochastic reading rose to 31.39 last week, up from 20.89 on Jan. 11. Reduce holdings on strength to my semiannual, annual, monthly and quarterly risky levels at $149.77, $157.49, $158.78 and $160.93, respectively.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.