Bubbles Are Beginning To Pop For Diamonds, Spiders And QQQ ETFs

The weekly chart for Diamonds has been downgraded to neutral as the “inflating parabolic bubble” is popping. The weekly charts for Spiders and QQQ remain positive but overbought and still in “inflating parabolic bubble” formations. The weekly chart for the Transports ETF has been downgraded to neutral. The weekly chart for the Russell 2000 ETF remains positive but overbought.

My call remains “Sell in May and Go Away!”

Here’s Today’s Scorecard

SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA)

Courtesy of Refinitiv XENITH

The Diamonds ETF slipped out of bull market territory at 19.8% above its 2018 low of $216.97 set on Dec. 26 and is 3.5% below its all-time intraday high of $269.28 set on Oct. 3. The all-time closing high is $267.67 also set on Oct. 3. The 2019 high remains $266.86 set on April 23. Remember that Dec. 26 low was a positive “key reversal” day as the close was above the Dec. 24 high. Its 12x3x3 weekly slow stochastic reading slipped to 87.84 last week, down from 93.13 on May 3 as an “inflating parabolic bubble” is popping. Monthly and semiannual value levels are $252.22 and $243.47, respectively, with an annual pivot at $257.94 and weekly and quarterly risky levels at $265.66 and $279.04, respectively.

SPDR S&P 500 Trust ETF (NYSEARCA:SPY)

Courtesy of Refinitiv XENITH

The Spiders ETF remains in bull market territory 23.4% above its Dec. 26 low of $233.76 and is 2.2% below its all-time intraday high of $294.95 set on May 1. The all-time closing high was set at $294.34 on April 30. Remember that Dec. 26 was a “key reversal” day as the close was above the Dec. 24 high. Its 12x3x3 weekly slow stochastic reading slipped to 93.60 last week, down from 96.14 on May 3, still in an “inflating parabolic bubble.” Monthly and semiannual value levels are $266.58 and $266.14, respectively, with an annual pivot at $285.86 and weekly and quarterly risky levels at $295.15 and $297.56, respectively.

Invesco QQQ ETF (NASDAQ:QQQ)

Courtesy of Refinitiv XENITH

The QQQ ETF remains in bull market territory 29% above its 2018 low of $143.46 on Dec. 24. QQQ is 3.3% below its all-time intraday high of $191.32 set on May 1. The all-time closing high is $191.11 on May 3. Its 12x3x3 weekly slow stochastic reading slipped to 94.21 last week, down from 96.64 on May 3 as an “inflating parabolic bubble.” Annual, semiannual and monthly value levels are $169.27, $167.53 and $164.31, respectively, with weekly and quarterly risky levels at $192.17 and $194.29, respectively.

iShares Transportation Average ETF (NYSEARCA:IYT)

Courtesy of Refinitiv XENITH

IYT is 22.9% above its 2018 low of $155.24 set on Dec. 24. The ETF is 8.9% below its all-time intraday high of $209.43 set on Sept. 14. The closing high of $208.48 was set the same day. The 2019 high of $200.42 was set on April 24. The 12x3x3 weekly slow stochastic reading slipped to 82.39 last week, down from 87.64 on May 3. Monthly and semiannual value levels are $172.90 and $159.63, respectively, with an annual pivot at $196.35 and quarterly risky level at $204.78.

iShares Russell 2000 ETF (NYSEARCA:IWM)

Courtesy of Refinitiv XENITH

IWM is 24.5% above its 2018 low of $125.81 set on Dec. 26 and is 9.7% below its all-time intraday high of $173.39 set on Aug. 31. The all-time closing high at $173.02 was set the same day. The 2019 high is $161.11 set on May 6. The 12x3x3 weekly slow stochastic reading rose to 83.71 last week, up from 83.45 on May 3. Semiannual and monthly value levels are $149.77 and $133.78, respectively, with an annual pivot at $157.49 and quarterly risky level at $166.03.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February, March and April. The quarterly level was changed at the end of March. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an “inflating parabolic bubble” as a bubble always pops. I also call a reading below 10.00 as being “too cheap to ignore.”

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.