KEY
TAKEAWAYS
- ETFs holding up during corrections often lead when the market turns up again.
- Ranking performance based on year-to-date and one month Rate-of-Change.
- ARTY and IHI show relative and absolute strength.
The stock market is in pullback mode with the S&P 500 EW ETF down 5.15% over the past month and down 1% year-to-date. This makes it a good time to monitor relative performance and create a relative strength watch list. Stocks and ETFs holding up best during pullbacks often lead when the market regains its footing. Today’s report will show a starter list and analyze the chart for an AI Robotics ETF.
The table below shows 1-month and year-to-date performance for a selection of industry group ETFs. With the S&P 500 EW ETF down on both timeframes, ETFs with gains are holding up well and ETFs with smaller losses show relative strength (less weakness). Five ETFs are up on both timeframes and holding up well in the face of broad market weakness.
Note that this list is simply the first cut. I would make a further cut by insuring that the ETF is in a long-term uptrend. For example, the Clean Energy ETF (PBW) is below its 200-day SMA and would not make the cut. The Medical Devices ETF (IHI) and Robotics AI ETF (ARTY) are in long-term uptrends, and make the cut. Let’s look at ARTY. A recent Chart Trader report/video highlighted the recent breakout in IHI.
The chart below shows ARTY hitting a new high in early December and price above the rising 200-day SMA. ARTY is in a long-term uptrend. There was a big breakout in mid October, an oversold reading in late October and then a 17% run to new highs. ARTY then formed a pennant and broke out with a surge earlier this week, only to fall back the last three days. Overall, I think the pennant breakout is still bullish and this is a throwback to the breakout zone. A break below the pennant lows would negate this pattern and argue for a deeper correction.
The middle window shows the price-relative (ARTY/RSP Ratio) breaking above its 200-day SMA in late November. ARTY shows relative strength and the price-relative hit a new high in early January. The lower window shows %B, which I use to identify oversold conditions within an uptrend. A dip below 0 means the close is below the lower Bollinger Band. This means there was a pullback within the uptrend, which is an opportunity.
I will be following ARTY and other leading ETFs closely in the Chart Trader reports and videos. Our reports warned of the breakout in the 10-yr Treasury Yield in before Christmas (HERE) and we also showed how to distinguish between a robust bounce and a dead cat bounce (HERE).
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Arthur Hill, CMT
Chief Technical Strategist, TrendInvestorPro.com
Author, Define the Trend and Trade the Trend
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Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
