Tuesday's message used hourly bar charts to show the three major stock indexes holding short-term support levels. Wednesday's daily bars show stocks continuing to stay above their green 20-day moving averages. They're usually the first line of support on market pullbacks. Ten of eleven market sectors are in the black Wednesday with technology being the only loser. Financials are one of the day's biggest gainers and are hitting a new recovery high. Bank stocks are leading them higher.

Chart 1

Chart 2

Chart 3

The daily bars in Chart 4 show the Financial Sector SPDR (XLF) rising to another recovery high in Wednesday's trading. That puts the XLF at the highest level in ten months. Its relative strength ratio in the upper box is also rising. Banks are helping to lead the XLF higher. Chart 5 shows the KBW Bank Index (BKX) hitting a new recovery high as well. Rising bond yields (and a steepening of the yield curve) are one of the factors driving banks and financials higher.

Chart 4

Chart 5

The daily bars in Chart 6 show the 10-Year Treasury yield climbing four basis points to 0.95%. Bond yields have been climbing since August. That's keeping downside pressure on Treasury bond prices. Corporate bonds, however, are holding up better. Chart 7 shows the iBoxx Investment Grade Corporate Bond ETF (LQD) consolidating just below its August peak. High yield bonds are doing even better. Chart 8 shows the iBoxx High Yield Corporate Bond ETF (HYG) hitting a new recovery high. That's not too surprising considering that high yield bonds usually track the stock market more closely.

Chart 6

Chart 7

Chart 8

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Editor's Note: This is an article that was originally published in John Murphy's Market Message on Wednesday, December 23rd at 2:10pm ET.

Way back in early September, a time long long ago, tech-related ETFs were leading the market and recording new highs. The Software ETF (IGV), Cloud Computing ETF (SKYY), Cyber Security ETF (HACK), Internet ETF (FDN) and Semiconductor ETF (SOXX), among others, were up 75 plus percent from late March to early September.

These ETFs then stalled for two months and underperformed the market. Chartists focused on short-term relative performance might have missed the bullish continuation patterns shaping up. After all, ETFs and stocks are entitled to a rest after big moves. Moreover, consolidations within uptrends are bullish continuation patterns. These represent the pause that refreshes.

The challenge for 2012: let's try to see more forest and fewer trees. I would even be so bold as to put forth a chartist challenge: filter out short-term noise, focus more on the structure of the price movements and obey the trend. At the end of the day, price action is the single most important factor. Everything else, and I do mean everything, is secondary, and largely noise. This goes for indicator divergences, short-term relative performance discrepancies, volume, sentiment and seasonal patterns.

The Software ETF (IGV) provides a great case in point. First and foremost, ETFs that recorded new 52-week highs in 2020 are stronger than ETFs that did not. Second, IGV formed a classic bullish continuation pattern as it stalled from early September to early November. Chartists focused on short-term bearish divergences, underperformance and heavy downside volume might have been distracted with what was happening on the price chart!

The next chart shows IGV with an Ascending Triangle, a classic bullish continuation pattern. After hitting a new high, IGV stalled with resistance in the 340 area (upper line) and this shows over head supply. The rising lower line shows demand coming in at higher lows and this represents accumulation. IGV confirmed the pattern as demand overpowered supply with a breakout in early December. With another string of new highs, the old leader is once again the new leader.

Looking for the new leaders? The Nasdaq 100 Next Gen ETF (QQQJ), a relatively new ETF, represents 100 stocks positioned to make the jump to the Nasdaq 100 ETF (QQQ). Stocks in QQQJ are typically in cutting-edge businesses with high growth rates. I created a 200-stock ChartList at TrendInvestorPro with the 100 stocks from QQQJ and the 100 stocks from QQQ. These are organized by sector and include industry group notes. This list is available to TrendInvestorPro subscribers. Click here for next generation analysis!

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This year created an extreme assortment of performance across financial advisors, hedge funds, individual investors, young entrepreneurs, self-directed investors and family office agencies. Those that protected capital might not have done as well if they didn't get back in early. Those that rode the whole thing out look like heroes, as civic, state and federal governments threw money at the pandemic response hand over fist... WORLDWIDE! The amount of debt incurred at a government level was phenomenal, and those same government officials recognize that the current politicians will never be around to have to suffer through the payment cycle. Here we sit at the back side of the single biggest liquidity flood in world history. Not only was it big, it was epic.

The next four charts roll through the four quarters of the year, remembering that the bottom was not at the end of one of the quarters. They are in sequence, Q1, Q2, Q3 and Q4.

People who patted themselves on the back for staying invested through it all are more than lucky it never rolled over again, as the other people who used historical models of defense tried to protect capital. If the vaccines had turned out with bad efficacy levels, it would have been a dramatically different fourth quarter. The good news is it worked out. At the end of March it was a train wreck, and the best performing parts of the market were defensives. Growth gurus looked like ice on a desert floor. They were quickly succumbing to the pressure.

This was Q1.

Moves to Staples and Utilities or a move to cash to preserve their life savings actually didn't work out that bad. They had the best results at the end of the 1st quarter (but still big losses) and the former tech investors using bullish options were smoked. Many wiped out their accounts. Some were literally remortgaging homes that were paid off, selling assets for margin calls and dealing with layoffs. The destruction was rapid.

But it was the ability to flex with the government response globally that ultimately worked out. If you had some capital preserved, the start of Q2 was a wonderful place to get long. I had one chart that I wrote - governments invest 6.6 trillion - get long!

Right now, many investors are doing look backs. The charts I roll my eyes at the most are the 10-year historical performance charts - conveniently after the 2009 debacle - of the different sectors, like that would be the ultimate guide to navigating the financial path while shutting down the world. What worked historically in these times, the defensives, were not the goto sectors after the flood, groundswell, air drop, deluge, tidal wave of government money. It was the software industry with stretched multiples, inviting you to go on a remarkable ride in the face of a rising death toll worldwide. The difference between a 2020 pandemic and a 1995 pandemic was that of the global connection of the internet, which changed how the world had to respond.

Office jobs worked from home, but still worked. Within my family, the COVID crisis actually meant we got to spend more time with our daughters that had moved away. Remote work (moving back to the roost while still working) proved not only possible, but proved to be the strategy for continuing to try and keep as much business moving forward as possible.

In the third quarter, it was more of the same, knowing that another global shutdown was probably going to occur. While the world had lots of oil and improving demand, it was not enough to rescue the second wave for the energy sector. Energy plummeted, and stay-at-home trades swelled. Defensives were up marginally, but were vast underperformers compared to discretionary and technology. Yes, it will be the year to analyze buying consumer discretionary in a pandemic. It worked and now the path seems clear, but that was not obvious in the face of rising death tolls.

The fourth quarter, with a few days left to run at the time of this article, changed remarkably again. What was the worst, became the best. Technology stalled with September highs, and, on the strong results from the COVID efficacy data, the cyclical areas of finance and energy all rose from the ashes. While these were big performers, it was only when the vaccine data came out that these really recovered.

For those that have to manage money professionally, it was extremely difficult to be as flexible as the wild gyrations of the 2020 market. Every quarter was different. For individual investors, it was about managing the preservation of capital while trying not to miss the move. If you have nothing left in retirement, it hardly makes sense to put it into the wildest, most expensive stocks one quarter, then the most beaten-down names the next.

Through it all, there are still pessimists that missed the entire ride. The pessimists are well represented by the group I still see on my twitter feed, who can't see sunshine on a blue sky sunny day. While they are right that all the metrics of a normal world are a mess, they can't see higher highs as bullish and keep forecasting the ultimate drop. When the world is breaking out to higher highs, you are not in a bear market. Bear markets don't have higher highs. While they were right in the Q2, Q3 and Q4 crushed their knowledge of historical patterns.

It is a pretty important year to be humble. It was a year where people lost fortunes and made fortunes. A year where some sold at the February highs and never got back in, or sold at the lows and never got back in. There were those that rode through the fastest 35% market crash in world history and wiped out their account using strategies that had worked for years. Those that saw the primary world source of energy trade negative overnight for the first time in history lived through what was an amazing year. Commodity investors blew up all around the world as historical statistics were wiped out. It was an important year to remember that, at any time, almost every investor had the mental fatigue of a terribly performing account within the year.

So, to be humble, I won't say how I did. For those touting their success to the 0.1%, congratulations. Much like in politics, this would be the year to help each other forward. Every politician failed miserably, but also had some successes. The high-efficacy vaccines to wrap up the year have given politicians and investors immense confidence for the next year.

I could list a string of things I thought the politicians did badly. I could list some of the errors I made. As an example, I was hedging oil against a rollover to the downside after the initial energy rally in the second quarter, and was wrong. I closed the hedge, and the third quarter was abysmal, with oil dropping, and my hedge would have been perfect. After licking my second quarter wounds in the trade, I was not about to put it back on. Then I was long for the big run in the fourth quarter. The result was excellent, but mentally demanding. It was that type of year.

One of the situations I am most concerned about is the blind focus by current governments that the governments of future years can deal with this outlandish debt. At this time, it appears to be the right thing to do. As an investor, that is not our job to question the world strategy. It is to figure out when to be bold and when to be more cautious. For those that never got cautious this year, I would suggest their "home alone" moment will show up at a later date. For those that never got bullish again, scars are hard to heal.

Lighten up on yourself, as it was a year where almost every investor questioned their work. Which part of the year beat you up is a good question, but very few escaped unscathed. All of us will remember 2020. You have been through record downside moves, upside moves, commodities trading below zero, the fastest vaccine discovery ever, the largest death count and the largest government spend EVER! Best wishes for 2021!

I'll be candid with you about my portfolio performance if you'll agree to be candid about yours.

This is the time of year when I subscribe to the routines outlined in Stage 10 of our book, Tensile Trading. The section entitled "Revisit, Retune, Refine". I do a deep dive into my holdings and YTD performances. The data here is through December 22, 2020.

The objectives and benefits of these annual efforts are many (see our book) but the four questions from 30,000 feet are the same each year.

1. Did I outperform the market?
2. Which tickers are responsible for the outperformance?
3. Which tickers underperformed?
4. Was it my asset allocation or my stock selection skills which generated the most profits?

Some quick background on my portfolio structure . I keep 80% in my CORE, which is entirely ETFs and no-load mutual funds with the key objective being asset protection. I invest across 20 asset classes in what I call "Best of Breed" (for a detailed description see Trader's Journal Blog - March 20, 2018). The other 20% of the portfolio is in stocks. I refer to this as my EXPLORE portion, and the objective here is growth.

It's a bit crass, but as J. Paul Getty liked to say, "Money is like manure. You have to spread it around to make things grow". I agree, but diversification is an entirely separate blog. After completing my analysis, I realized that overwhelming my readers with ALL the data would drive you to the eggnog bowl. Therefore, for clarity and illustration I've limited my descriptions to the top half-dozen tickers in both the CORE and EXPLORE portions of my portfolio. That's adequate to illustrate my points.

Remember that YTD (through December 22, 2020) the Vanguard Total Market Index (VTI) is up 20% while the S&P 500 (SPY) is up 17%. In addition, remember my four objectives that I listed previously.

Diving into my Asset Allocation analysis, the asset classes to which I made the biggest commitment in 2020 were Technology and Biotech. Next in line was Global Equities which means the funds do have approximately 20% exposure to USA stocks with the majority of the equities spread around the world. For a whole host of reasons, I also bulked up on mid-cap stocks, and specifically growth-oriented mid-caps. To be candid, I've never been much of a value investor, although I'll speak later to my failed attempt to venture into the low volatility arena which I deemed an alternative to value investing.

So, the six funds I used to cover these asset classes and their YTD performance are as follows:

Global

• ARTYX + 80%
• VWIGX + 56%

Technology

• PRGTX + 79%
• SMH + 52%

Biotech

• XBI + 59%

Mid Cap Growth

• JKH + 48%

 

Keeping the math silly-simple, the average performance was 62% for this group. Clearly, with my CORE I made money while I slept because of my asset allocation decisions - not my stock picking skills.

Now, let's contrast this with six stock positions from the EXPLORE portion of the portfolio. Please note that the key decision in 2020 I made was the Sector choice. Had I picked the Energy Sector (XLE) and not Technology (XLK), the results would have been devastating. The point being, my asset allocation decision amongst the sectors made the big money — not necessarily my individual stock picks.

Yes, all six equities are in the Technology Sector. The reality is that stocks seldom levitate by themselves. The markets obey the laws of groupings. Therefore, the big returns come from your Sector and Industry choices. As much as we'd all love to boast that it was our acumen as stock pickers that made the big profits, in reality it comes down to our skills as asset allocators first and foremost. This, therefore is worthy of the majority of your money and time.

So, these are six of my tech stocks:

• AVLR + 148%
• AAPL + 81%
• AMZN + 73%
• QCOM + 73%
• ADBE + 52%
• MSFT + 43%

Some of you might rightfully point out that the average return of these EXPLORE stocks' tallies 78% and thereby exceeds the paltry 62% return of CORE asset classes. True, but the caveat is that my CORE accounts for 80% of my portfolio and the stocks in the EXPLORE portion only account for 20%

In other words:

1. The CORE holdings pay the majority of my bills
2. My Asset Allocation skills are far more important than my stock picker skills.

The bottom line here is that if you see the merit in expanding your own skills in this area, I'd suggest a detailed seminar on the subject. It will be worth it!

I did mention that I'd briefly discuss a poor asset class decision, so here goes! About three years ago, I pretty much threw in the towel on my "value stocks" as an asset class and replaced it with "low volatility" stocks. There are a number of ETF options, but at the time, I bought into Vanguard's Global Minimum Volatility Fund (VMNVX) because in 2017 it had been outperforming SPY with less volatility. I thought I'd found the Holy Grail being higher rewards with less risk. I was stunned this year when it significantly underperformed the market. I sold if for a modest profit and have sworn off value and low volatility as an asset class for the most part!

Let me say that diversification doesn't give you permission to ignore your portfolio. But strategically executed asset allocation can do the following:

1. minimize your taxes.
2. customize the market's risk to match whatever tolerance you deem appropriate for yourself.
3. minimize the possibility of watching your blue chip stock (i.e. General Electric) go from $29 down to $6.
4. provide both safety and income yet offer some growth as well which even retirees need.

Closing thought for 2020: First of all, wear your mask! Secondly then, the question of which asset classes to buy (in our book, we graph 59 assets and show their correlations to the S&P 500) and how much to buy is far more important to your long term financial success than deciding which hot stocks to buy today.

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Don't miss my interview on this month's year-end StockCharts TV special, "Reflections 2020: Re-Evaluating Your Process"

 

 

Trade well; trade with discipline!

- Gatis Roze, MBA, CMT

StockMarketMastery.com

• Author, "Tensile Trading: The 10 Essential Stages of Stock Market Mastery" (Wiley, 2016)
• Presenter of the best-selling "Tensile Trading" DVD seminar
• Presenter of the "How to Master Your Asset Allocation Profile DVD" seminar
• Developer of the Tensile Trading ChartPack for StockCharts members

 

(This is a reprint of the subscriber-only "DecisionPoint Alert" article from 12/22/2020. Merry Christmas & Happy New Year to all from Carl & Erin Swenlin)

One of the ways we measure market bias is by looking at the histograms of the Swenlin Trading Oscillators (STOs) and the ITBM/ITVM. You'll note that, since the November low, we have had a strong bullish bias, as represented by the "green" on the chart. We've seen deterioration on the STOs. Because they are short-term indicators, we've had a bit more bouncing around, which gives us a neutral bias overall in the short term. The intermediate-term indicators of the ITBM/ITVM have been sporting a strong and solid bullish bias; however, that has changed drastically since the initial December top. I'll talk more about these indicators individually below, but I believe it is important to see them on the same chart now and then.

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The DecisionPoint Alert Weekly Wrap presents an end-of-week assessment of the trend and condition of the Stock Market, the U.S. Dollar, Gold, Crude Oil and Bonds. The DecisionPoint Alert daily report (Monday through Thursday) is abbreviated and gives updates on the Weekly Wrap assessments.

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Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!

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MAJOR MARKET INDEXES

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SECTORS

Each S&P 500 Index component stock is assigned to one, and only one, of eleven major sectors. This is a snapshot of the Intermediate-Term (Silver Cross) and Long-Term (Golden Cross) Trend Model signal status for those sectors.

CLICK HERE for Carl's annotated Sector charts.

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THE MARKET (S&P 500)

IT Trend Model: BUY as of 5/8/2020

LT Trend Model: BUY as of 6/8/2020

SPY Daily Chart: The market was down slightly today, but it logged a much higher low than yesterday's. This only gets price back within the bearish rising wedge. The PMO has topped below its signal line and the negative OBV divergence is still in play. The VIX is rising again on the inverted scale, but it remains underneath its EMA, which suggests market weakness.

The RSI does remain positive primarily due to price moving mostly sideways through November and December. Total volume was very low, but I suspect that is due to holiday trading.

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***Click here to register for this recurring free DecisionPoint Trading Room on Mondays at Noon ET!***

Did you miss the 12/14 trading room? Here is a linkto the recording -- access code: 7dJNVe6+

For best results, copy and paste the access code to avoid typos.

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Participation: The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.

• The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA).
• The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA).
• The Bullish Percent Index (BPI) shows the percentage of SPX stocks on Point & Figure BUY signals.

What really concerns me about this chart is the topping GCI. Note the previous tops nearly always occur at cardinal tops. The SCI turned up and the BPI was flat. Overall, both of these indicators are indecisive at best. Ultimately, they are flat and toppy, which is not good for the market either.

 

We continue to see deterioration on components of the SPX as more and more lose support at their 20-/50-/200-EMAs.

Climactic Market Indicators: No climaxes today. We saw a slight expansion of New Highs on a down day, which could be considered somewhat positive.

Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.

I was surprised to see a spike lower on the STO-V, but I don't want to read too much into this given total volume was so low. That could've affected this reading. Ultimately, both indicators are falling, suggesting more downside for the market. Readings are somewhat oversold in the near term, but we aren't seeing oversold readings on %Stocks > 20-EMA. The %PMOs Rising is nearing oversold territory.

Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is SOMEWHAT BULLISH.

IT Indicators continue to drop. The ITBM and ITVM are starting to move Neutral, but, for the time being, they are still showing some bullish bias. We now have less than 30% of SPX stocks with their PMOs above their signal line. It is moving lower quickly and isn't all that oversold.

CONCLUSION: Today's candlestick doesn't look too bad given there was a decline today. Price remains inside a bearish rising wedge. The STOs turned down today with a vengeance, which suggests a coming breakdown. The bullish bias is no longer in play in the short term and it is disintegrating in the intermediate term. The market continues to act toppy, but it also remains above the November top. Given bullish seasonality, I don't expect a serious breakdown from this wedge just yet.

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INTEREST RATES

This chart is included so we can monitor rate inversions. In normal circumstances, the longer money is borrowed, the higher the interest rate that must be paid. When rates are inverted, the reverse is true.

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DOLLAR (UUP)

IT Trend Model: NEUTRAL as of 5/28/2020

LT Trend Model: SELL as of 7/10/2020

UUP Daily Chart: I've annotated a declining trend channel. Price has bounced off the bottom and is headed up to test the top again. While we are seeing improvement on the RSI and PMO, we saw this at the previous December low and the rally didn't even test overhead resistance at the top of the declining trend channel. You'll also note that the top of the declining trend channel is right at the 20-EMA. This means that price must take out two resistance levels. If it can do that, I'll rethink my bearish position on the Dollar.

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GOLD

IT Trend Model: NEUTRAL as of 10/14/2020

LT Trend Model: BUY as of 1/8/2019

GOLD Daily Chart: I really thought this was going to be Gold's time to shine, but it is already starting to tarnish. At this point, it is traveling within a bearish rising wedge, similar to the SPY's. Today's pullback did keep price above the 20-EMA and the September low. The rising bottoms trendline that forms the bottom of the wedge is also holding up. I'll likely reverse my bullish position on Gold if this important area of support is broken.

(Full disclosure: I own GLD.)

GOLD MINERS Golden and Silver Cross Indexes: Miners have just officially formed a declining trend channel. The RSI has turned negative and important support has been lost at the 20-EMA. The PMO is still on a BUY signal, but it has begun to turn over below the zero line. On the bullish side, we have rising trends on the SCI and BPI. On the bearish side, GDX members are losing support at the 20-/50-/200-EMAs.

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CRUDE OIL (USO)

IT Trend Model: BUY as of 10/20/2020

LT Trend Model: SELL as of 2/3/2020

USO Daily Chart: The pullback in Oil continued today with another deep decline. The RSI is still positive, but the PMO has topped and could generate a crossover SELL signal rather quickly. However, I'm not that bearish on USO given that price is maintaining above the 20-EMA, just like it is on $WTIC.

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BONDS (TLT)

IT Trend Model: NEUTRAL as of 8/27/2020

LT Trend Model: BUY as of 1/2/2019

TLT Daily Chart: It appears that price has bounced and formed a higher low. However, overhead resistance at the 50-EMA is stout. The RSI is negative, but it is improving. I can't get bullish until I see a breakout above the 50-EMA. For now, I would expect more sideways movement.

(Full Disclosure: I own TLT.)

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Technical Analysis is a windsock, not a crystal ball.

Happy Charting! - Erin

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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NOTE: The signal status reported herein is based upon mechanical trading model signals, specifically, the DecisionPoint Trend Model. They define the implied bias of the price index based upon moving average relationships, but they do not necessarily call for a specific action. They are information flags that should prompt chart review. Further, they do not call for continuous buying or selling during the life of the signal. For example, a BUY signal will probably (but not necessarily) return the best results if action is taken soon after the signal is generated. Additional opportunities for buying may be found as price zigzags higher, but the trader must look for optimum entry points. Conversely, exit points to preserve gains (or minimize losses) may be evident before the model mechanically closes the signal.

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Helpful DecisionPoint Links:

DecisionPoint Alert Chart List

DecisionPoint Golden Cross/Silver Cross Index Chart List

DecisionPoint Sector Chart List

DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking

DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.

A lot of traders opt for individual stocks when looking for outsized gains. But ETFs can produce great gains as well if you are able to identify which ones are poised to rise.

As an example, take a look at the chart below on the Clean Energy ETF, PBW.

As you can see, this ETF has risen almost 58 percent (Compared to 8% on the S&P during the same period of time) at its peak last week, since we established our first ETF Portfolio at EarningsBeats.com on October 19. The portfolio is made up of 8 specific ETFs, which our Chief Market Strategist Tom Bowley unveiled to members; as a group, they have handily outperformed the broader market.

When Tom first released this group of ETFs, they were meant to be held for 90 days. In order to "make the cut", it was important to know which stocks/sectors were represented in each of the 8 ETFs, along with other risk factors that could impact performance. In other words, a great deal of vetting "underneath" each ETF to zero in on those with the greatest near-term promise.

Now we are getting ready to "officially" kick off our "ETF Service" as the new year begins with the next "Draft Day" - unveiling the next batch of ETF's - taking place on January 19. We'll be letting the EarningsBeats.com community know more about what to expect over the next few weeks. If you would like to be kept up to date, you can sign up for our FREE EarningsBeats Digest that comes out every M, W and F by clicking on this link; we'll share additional information starting January 1.

Wishing everyone a healthy and prosperous 2021! At your service,

John Hopkins

EarningsBeats.com