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Relative Trends Say Stocks May Need To Do Some Healthy Backfilling

Chris Ciovacco profile picture
Chris Ciovacco


  • A comparison of behavior near the 2009 stock market low is telling.
  • Leading ETFs say market believes Fed is done or nearly done with rate hikes.
  • Bulls testing an important area.

How Much Improvement?

While the recent breadth thrust leans bullish for stocks, the CCM ETF Stack Rank Model shows the strongest trends on multiple time frames (1-month to 1-year) are still dominated by defensive ETFs (SPLV) and ETFs that benefit from lower/stable interest rates and a weaker U.S. dollar (e.g. income and foreign/emerging markets).

From a bigger-picture perspective, has the impressive V-rally in stocks flipped the trends back to a "the economy looks solid" footing? The chart below shows the intermediate-/long-term trend in emerging markets (EEM) relative to more defensive/income-oriented REITs (IYR). Notice how the present day chart has not flipped in favor of emerging markets as it did near the March 2009 low in the stock market.


The generic moving averages (125-, 150-, 175-, and 200-day) are shown to illustrate basic concepts about trends and investor risk tolerance.

A similar "growth-oriented ETFs have not turned yet vs. defensive ETFs" look can be seen using the same two periods, but this time via the technology (XLK)-to-defensive-utilities (XLU) ratio.

The intermediate- to long-term trends may flip soon in 2019, but they have not flipped as of Wednesday, January 30, 2019. The same concepts can be seen by comparing and contrasting the two growth (VUG) stocks vs. bonds (IEF) charts below.


100% Open To Wildly Bullish Outcomes

Our purpose here is not to make the bearish case, but rather to illustrate what we are still seeing in the hard data. Our S&P 500 (SPY) trend strength model has shown some very modest improvement this week, and the ETF Stack Rank is not yet screaming "everything looks great". We will continue to take it day by day, monitoring the data with an open mind. The charts above may simply mean the bulls need to take a breather with some normal backfilling and healthy retracements; a topic covered

This article was written by

Chris Ciovacco profile picture
Chris Ciovacco is the founder and CEO of Ciovacco Capital Management (CCM), an independent money management firm serving individual investors nationwide. The thoroughly researched and backtested CCM Market Model answers these important questions: (1) How much should we allocate to risk assets?, (2) How much should we allocate to conservative assets?, (3) What are the most attractive risk assets?, and (4) What are the most attractive conservative assets? Chris is an expert in identifying the best ETFs from a wide variety of asset classes, including stocks, bonds, commodities, and precious metals. The CCM Market Model compares over 130 different ETFs to identify the most attractive risk-reward opportunities. Chris graduated summa cum laude from The Georgia Institute of Technology with a co-operative degree in Industrial and Systems Engineering. Prior to founding Ciovacco Capital Management in 1999, Mr. Ciovacco worked as a Financial Advisor for Morgan Stanley in Atlanta for five years earning a strong reputation for his independent research and high integrity. While at Georgia Tech, he gained valuable experience working as a co-op for IBM (1985-1990). During his time with Morgan Stanley, Chris received extensive training which included extended stays in NYC at the World Trade Center. His areas of expertise include technical analysis and market model development. CCM’s popular weekly technical analysis videos on YouTube have been viewed over 700,000 times. Chris’ years of experience and research led to the creation of the thoroughly backtested CCM Market Model, which serves as the foundation for the management of separate accounts for individuals and businesses. Copy and paste links into your browser: Market Model: http://www.ciovaccocapital.com/sys-tmpl/ccmmarketmodel/ More About CCM: http://www.ciovaccocapital.com/sys-tmpl/aboutus/ YouTube: http://www.youtube.com/user/CiovaccoCapital Twitter: https://twitter.com/CiovaccoCapital CCM Home Page: http://www.ciovaccocapital.com/sys-tmpl/hometwo/

Analyst’s Disclosure: I am/we are long SCHB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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