February is off to a better start than January, states Bonnie Gortler of bonniegortler.com

Eight of the eleven sectors rose, with only three sectors performing better than the SPDR S&P 500 ETF Trust (SPY) +1.53 %. Energy (XLE) and Financial (XLF) were the strongest, while Real Estate (XLRE) and the Communication Sector were the weakest.

S&P SPDR Sector ETFs Performance Summary 1/28/22 - 2/4/22

Figure 1: S&P SPDR Sector ETFs Performance Summary

Figure 2: Bonnie's Mix of ETFs To Monitor

Summary 1/28/22 - 2/4/22

Figure 2: Bonnie's Mix of ETFs To Monitor

China and Emerging Markets strengthened, both stronger than the S&P 500. Semiconductors returned to their winning ways while high-yield bonds fell and continued to slide, which is concerning. 10-Year US Treasury yields finished higher for the week closing at 1.93% (Figure 3: brown circle), its highest level since January 2020. The next upside objective is 2.7%. 5-Year US Treasury yields rose to 1.78%, the highest since July 2019 (Figure: 4 purple circle), continue to make higher highs.

Figure 3:10-Year US Treasury Yield
Figure 3:10-Year U.S. Treasury Yield

Figure 4: 5-Year US Treasury Yield

Figure 4: 5-Year U.S. Treasury Yield

Dow gained +1.05% for the week. S&P 500 rose +1.55%, while Nasdaq gained +2.38%. The Russell 2000 Index rose +1.72%, and the Value Line Arithmetic Index (a mix of approximately 1700 stocks) was up +1.82%.

Weekly market breadth was positive. The New York Stock Exchange Index (DIJ) had 2186 advances and 1382 declines. Nasdaq Composite (IXIC) had 3647 advances and 1613 declines. There were 163 new highs and 464 new lows on the NYSE, and 175 hew highs and 763 new lows on the Nasdaq. Although market breadth was positive, continued improvement is needed for a new uptrend to develop sustainability.

Figure 5: CBOE Volatility Index VIX

Figure 5: CBOE Volatility Index VIX

The CBOE Volatility Index (VIX), a measure of fear, has been above average in 2022, peaking at 31.96 on 1/26, slightly higher than the high made on 12/1/ 21 (blue circle). Volatility quieted last week as selling subsided, and the bottoming process continues closing at 23.22 above support at 23.00. Day-to-day volatility is likely to continue as long as VIX closes above 20.00.

Figure 6: Daily New York Stock Exchange (NYSE) New Lows

Figure 6:Daily New York Stock Exchange (NYSE) New Lows

Watching on the New York Stock Exchange is a simple technical tool that helps awareness about the immediate trend's direction. New lows warned of a potential sharp pullback, high volatility, and "panic selling" for most of 2022, closing above 150.

If the new lows are above 50, it is an alert or warning of possible market weakness or a change in market tone. Be aware it's a good idea to make sure you are happy and comfortable with your portfolio. It is best not to have more volatile investments than you can handle where you feel uncomfortable. If the selling continues, you could have serious losses if the market falls further. When new lows are above 150, the market is negative, higher risk, selling is taking place. Sometimes it could be severe, and sometimes on a very nasty day, you can have "panic selling," and big wild swings (high volatility) to the downside may occur.

As the market sold off in January, new lows rose sharply, peaking at 792 (red circle) on 1/24. New lows then narrowed to 542 (green circle) on 1/28 and continue to contract to close on 2/4 at 265 but are not yet in a safe low-risk zone.

As long as new lows remain above 150, caution is necessary, implying high risk. On the other hand, if new lows contract below 150 and ultimately between 25 and 50, it would indicate lower risk and that the bottoming process is likely over and further gains ahead. For now, the risk remains high, and the bottoming process continues.

Figure 7: Daily Nasdaq Advance-Decline Line
Figure 7: Daily Nasdaq Advance-Decline Line

Market breadth on the Nasdaq remains in a downtrend in 2022. The daily Nasdaq AD-Line peaked in February 2021 (brown circle), followed by failed attempts to make a new high. After breaking the October uptrend (blue dotted line), the AD-Line made a series of lower highs in November, December, and January.

Two clear-down trends (blue and purple) remain in effect, with only a few upticks that have failed. Last week the AD-Line closed slightly higher than its March 2020 new low (red circle). A turn up with the AD-Line breaking the November downtrend (blue line) would be the first sign of a short-term potential bottom.

Figure 8: Daily iShares Russell 2000 (IWM) Price (Top) and 12-26-9 MACD (Middle and Money Flow (Bottom)

Figure 8: Daily iShares Russell 2000 (IWM

The top portion of the chart is the daily iShares Russell 2000 Index ETF (IWM), the benchmark for small-cap stocks, with a 50-day moving average (MA) (blue line) and 200-day moving average (MA), that traders watch and use to define trends. A false breakout occurred in November 2021 in IWM after being in a nine-month trading range.

IWM closed up +1.6% for the week but closed below its 50 and 200-day moving average (red circle) and in a downtrend since January (blue line). On the other hand, it's a positive sign IWM did not make a lower low last week, and now a pattern of higher highs has developed.

The short-term downside objective remains at 178.00 with support at 195.00 followed by 187.00. Resistance is 200.00, 205.00, and 210.00. MACD (middle chart) earlier in the year was too weak to generate a sell, missing getting above zero in early January. MACD turned up and developed a re-entry buy last week.

Money Flow (lower chart) remains oversold but no turn up yet. Both MACD and Money Flow remain in downtrends. Therefore, no confirmation as of yet that last week's rise will continue.

Figure 9: Daily Invesco QQQ Trust (QQQ) Price (Top), and 12-26-9 MACD (Bottom)

Figure 9: Daily Invesco QQQ Trust (QQQ) Price (Top), and 12-26-9 MACD (Bottom)

The chart shows the daily Invesco QQQ, an exchange-traded fund based on the Nasdaq 100 Index with its 50-day moving average and 200-day moving average.

In June, QQQ was in a trading range (orange rectangle). After breaking the short-term downtrend (blue line), QQQ rallied in October and continued to climb in November, barely missing its upside target of 410.00 on 11/22 with a high of 408.71 before reversing lower. In December, QQQ failed to make a new high and broke down below the first support at 390.00 and below the 50-day moving average (blue circle), shifting the trend to down.

A volatile week for QQQ closing at 358.01 up +1. 77% for the week. However, QQQ remains below the 200-day moving average (red circle) and the January downtrend (green line). The downside objective remains at 330.00, followed by 310.00.

Resistance is at 360.00, followed by 370.00. Any close above would likely trip the buy stops. Support is at 350.00 and 340.00.

The lower chart is MACD (12, 26, 9), a measure of momentum. MACD flipped to a buy last week but remained in a downtrend (black line). It's a positive sign Money Flow has turned up and broken the November downtrend (chart not shown).

Intermediate-Term Trend is Down

Figure 10: Weekly Invesco QQQ Trust (QQQ) Price (Top) and 12-26-9 MACD (Bottom)

Figure 10: Weekly Invesco QQQ Trust (QQQ) Price (Top), and 12-26-9 MACD (Bottom)

The top chart shows the weekly Invesco QQQ Trust (QQQ) making higher highs peaking in November 2021 (red circles) but failed to make a new high in December, and then turned down.

The September 2020 uptrend broke down two weeks ago (middle purple line), giving a downside objective to 320.00 (lower channel). MACD (lower chart) remains on a sell after making lower highs and breaking below support held since February 2020 (pink dotted line), implying weak underlying momentum. MACD has accelerated lower, not yet oversold, below zero. More time is needed for a safe intermediate bottom to develop.

Figure 11: Van Eck Semiconductors (SMH) Daily Price (Top), 12-26-9 MACD (Middle), and Money Flow (Bottom)

Figure 11: Van Eck Semiconductors (SMH) Daily Price

Semiconductors (SMH) broke through resistance in October (green arrow) and surged higher until late November. SMH stalled, and the October uptrend violated (blue line), followed by a trading range. Support was broken two weeks ago (red rectangle), and SMH fell sharply.

After making a lower low below the lower channel, SMH stabilized and rose +4.14 % for the week closing at 272.53. Resistance is at 275.00, followed by 290.00, and 310.00.

Support is at 266.00, 255.00, followed by 235.00, the next downside channel objective if support at 255.00 doesn't hold.

MACD (middle chart) generated a buy (green circle) from an extremely oversold level implying the worst of the decline is over. I want to see MACD break the December downtrend to confirm the buy.

Money flow (lower chart) turned up (purple circle) and broke the downtrend (green line) is a positive sign the SMH will continue to rise.

Figure 12: New York Stock Exchange AD-Line

Figure 12: New York Stock Exchange

The NYSE A/D line made a new high on 11/8/21. In December, the AD line broke the November downtrend (brown line) but did not make a new high warning of a pending correction forthcoming in the NYSE. The lows made in July, August, September, and December (blue circles) did not hold. The old support area is now new resistance.

Figure 13: ARKK Daily

Figure 13: ARKK Daily

ARK Innovations ETF (ARKK) is an actively managed ETF by Cathie Wood that seeks long-term growth and is highly volatile. ARKK broke its September short-term downtrend (brown line) in October 2021, followed by a failed rally peaking at 125.86 on 11/04/21. Once ARKK fell below support at 94.00, it broke through the December uptrend (pink line) and accelerated lower.

The January downtrend was broken last week, shifting the short-term trend to up, signaling traders are more interested in growth stocks. ARKK rose +5.57%% for the week closing at 72.75.

The downside momentum in ARKK appears to have stabilized and is worth watching to see if it continues to rise and is stronger than the Nasdaq.

Resistance is at 74.00, followed by 77.50, and 90.00. Support is at 67.50 and 64.00. A close below 64.00 would imply the rally failed and further downside. MACD has been below zero, implying weak momentum since last November. MACD gave a buy last week. With further strength in ARKK, the November downside trendline is likely to be broken, which is positive in the short term.

Money flow (lower chart) is rising and has already broken the 2022 downtrend, implying ARKK is likely to go higher in the short-term.

ARKK remains high-risk volatile, with the bears no longer in control and the bulls cautiously coming out of hiding. A close above 77.50 is likely to wake up the bulls and lead to a sharp, quick, rally so don't get caught short.

Summing Up:

The major averages are off to a positive start in February after an ugly January. Short-term momentum oscillators are no longer declining and have turned up from oversold conditions where a sustainable rally is possible and could begin the start of a new uptrend. More evidence is needed for price and momentum downtrends to penetrate to the upside, confirming the bottoming process that started on January 24 is complete, implying it's more than a technical oversold bounce, and the worst is over. Market sentiment continues to show fear helping the bullish case. Watch Small Caps, Semiconductors, Technology, and improvement in market breadth on both the NYSE and Nasdaq to signal if the short-term rally is sustainable and the bulls will be in control—or if the rally runs out of steam, the bears will retake control.

Remember to manage your risk, and your wealth will grow.

I would love to hear from you. If you have any questions or comments or would like to talk about the market, email me at Bonnie@Bonniegortler.com

Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.