Top Advisors Corner

Tushar Chande: Full Trend Analysis of Major Market ETFs

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The big picture: US GDP data have ticked up and markets remain in shallow up-trends.  We remain bullish though market internals have weakened due to choppy trading in narrow price ranges.

The Big Picture: US Economy Shows Improvement 

We analyze the Chicago Fed National Activity Index (CFNAI) data and recast it in an investor-friendly format (see Figure 1).  The economy weakened in the first quarter of 2015, but has bounced back in the second quarter.  Our rating remains solidly in the bullish range.  This means that there is little risk of a massive market sell-off, and macro data continue to support higher equity prices.  (Naturally, flash-crashes are not ruled out by this analysis.)


Figure 1: Our analysis of the Chicago Fed National Activity Index (CFNAI) data shows that the US economy is firmly supportive of equity markets after it bounced a bit in the second quarter of 2015. Ideally, the economy will get stronger and continue to push the rating towards 100 percent.  Chart courtesy ETFmeter.com

The Big Picture: Dominant Chart Patterns Hold (Shallow Up-trend channels)

Akin to Newton’s Laws, a key feature of chart analysis is that dominant chart patterns tend to remain in force until broken decisively.  Despite the recent volatility, we find the broader market ETFs are in shallow up-trending channels.  These patterns will persist until they are broken decisively (See Figure 2).

Figure 2: The very-broad based IWM Russell 2000 iShares ETF has retested the break-out level in the 118-120 area three times.  The recent down-trend (red channel) has brought the IWM to its dominant 2015 trend channel (grey lines). Chart courtesy StockCharts.com

Long-term Systems View

Our chart review showed that the major market ETFs are in shallow up-trends.  This is visible in our long-term systems view (see Figure 3), which shows the broad ETFs rising moderately or weakly, with systems trend rank of 2 or 3.  The year-ahead forecast is for low double-digit gains, also consistent with shallow up-trends, and a rebound in the US economy shown in Figure 1.

Figure 3: The long-term systems view is moderate to weak up-trends in the major market ETFs, consistent with charts in Figure2 and the weakness and rebound in economic activity shown in Figure 1. Chart courtesy ETFmeter.com

Summary

The US macro data are supportive of gains in equity prices over the long-term.  Price charts show well defined up-trends that remain in force until broken decisively.  Market internals, though flashing caution, are still not red over the long-term.  So, though head-line driven volatility will probably remain for the rest of the year, we are bullish on the markets until the data prod us to change our posture.

Complete Analysis

You can see the complete analysis at http://www.etfmeter.com/blog.aspx?id=4394

 

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