Wednesday, September 27, 2023

3 ETFs Recommend Additional Problem | The Conscious Investor


This previous week had the entire possible to look a revival of the nice bull marketplace of 2023. The September inflation information, Apple’s newest product bulletins, and Arm’s IPO all gave the impression had the chance to reignite the fireplace of bullishness for traders.

Via Friday’s shut, then again, the S&P 500 seemed to be limping into the weekend. Enlargement shares struggled and defensive sectors thrived because the marketplace took on an overly risk-off really feel to wrap the week.

With this week’s pullback, the S&P 500 chart seems to be forming a possible head-and-shoulders trend.

Observe the height in past due July round 4600, surrounded through decrease highs in June and August. If and when the SPX can spoil beneath the “neckline” shaped through the period in-between lows in June and August, that will counsel additional deterioration to a minimum of the 200-day transferring reasonable.

Let us take a look at 3 key ETFs, all appearing indicators of distribution, all with additional drawback possible, and all with implications for additional deterioration in threat belongings.

Semiconductors (SMH)

Semiconductor shares have performed somewhat smartly because the October 2022 low, with the robust relative power demonstrating constant outperformance over the S&P 500 index. This ETF superbly illustrates the dominance of large-cap progress shares over different cap tiers in 2023.

In July, we famous a bearish momentum divergence, the place value moved upper whilst the RSI trended decrease. This trend continuously signifies an exhaustion level all through bull stages, and suggests restricted upside because of weakened certain momentum.

After trying out resistance round $160 two times in July, the SMH registered a decrease top in past due August. If the associated fee would push beneath $142, that will imply a brand new decrease low as smartly. Given the weakened relative power profile and damaging momentum swing, there seems to be very actual possible for additional drawback on this bellwether trade staff.

Homebuilders (ITB)

For many of 2023, homebuilders have been firing on all cylinders with constant new highs and a gentle uptrend for relative power. Momentum traits, as measured through the RSI indicator, have been very similar to earlier bullish marketplace stages.

Observe the top costs in July and August, the place the ITB examined the similar resistance stage round $89 repeatedly over a four-week duration. Then, across the Hard work Day vacation, we see a brand new decrease top round $88. Very similar to semiconductors, this main staff started to turn indicators of decay, because the uptrend had stalled out.

The relative power line, which have been trending upper since November 2022, has now grew to become decrease. This means that the trade staff is underperforming the S&P 500, and in addition means that institutional traders are rotating their belongings to different alternatives, like Power shares.

We will establish value strengthen round $81 from lows in July and August. This stage was once reached as soon as once more this week, with Friday’s drop as soon as once more pushing value right down to possible strengthen. If we see a spoil beneath $80, that will whole a breakdown trend, with the peak of the trend indicating a minimal drawback purpose round $73.

Bonds (AGG)

This closing chart is other than the others, in that it’s been in a showed downtrend for a while now. The iShares Core U.S. Combination Bond ETF (AGG) is primarily based off a well-liked bond marketplace index and combines Treasury bonds and company bonds into one ETF.

Whilst the Nasdaq 100 and S&P 500 indexes broke above their February 2023 highs in April and Would possibly, respectively, AGG by no means was once in a position to perform this breakout. A trendline the usage of the highs since Would possibly display a slightly stable downtrend in bond costs, resulting in a key strengthen stage round $94.50.

Observe how the RSI has remained beneath 60 all through this era as smartly. In bearish marketplace stages, all the vary of a momentum indicator continuously strikes decrease. So long as the RSI stays beneath 60 on value bounces, it could counsel that this downtrend in bond costs could be very a lot intact.

Why would decrease bond costs counsel additional drawback for equities? A snappy take a look at the Ten-12 months Treasury Yield displays how upper charges are continuously no longer a perfect surroundings for progress shares.

Decrease bond costs imply upper bond yields. And better rates of interest are a headwind for progress shares, as the worth proposition for progress shares is the opportunity of long term profits progress. If rates of interest are going upper, that implies that the long run profits of progress firms are value much less as of late.

Because the panel slightly under the Ten-12 months Yield displays, progress shares had been retaining stable with worth shares in spite of this emerging price surroundings. But when bond yields stay trending upper, this may put increasingly power on progress shares. which in turns way extra possible drawback for our growth-oriented benchmarks just like the Nasdaq 100 and the S&P 500.

The S&P 500 has no longer but showed a head-and-shoulders topping trend. However given the vulnerable traits in those 3 key ETFs, it seems that {that a} breakdown for the S&P is a lot more most probably than traders might be expecting!



P.S. Able to improve your funding procedure? Take a look at my unfastened behavioral making an investment direction!

David Keller, CMT

Leader Marketplace Strategist

Disclaimer: This weblog is for academic functions best and will have to no longer be construed as monetary recommendation. The guidelines and methods will have to by no means be used with out first assessing your personal non-public and monetary state of affairs, or with out consulting a monetary skilled.

The writer does no longer have a place in discussed securities on the time of e-newsletter. Any critiques expressed herein are only the ones of the writer and don’t in any respect constitute the perspectives or critiques of every other particular person or entity.

David Keller

In regards to the writer:
, CMT is Leader Marketplace Strategist at, the place he is helping traders decrease behavioral biases via technical research. He’s a common host on StockCharts TV, and he relates mindfulness tactics to investor choice making in his weblog, The Conscious Investor.

David may be President and Leader Strategist at Sierra Alpha Analysis LLC, a boutique funding analysis company concerned with managing threat via marketplace consciousness. He combines the strengths of technical research, behavioral finance, and information visualization to spot funding alternatives and enrich relationships between advisors and purchasers.
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