Tag Archives: SIN

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January 10, 2016 Strength In Numbers

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Macro Relative Strength

Intermarket ETF RS Rankings1-8-2016 Intermakret ETF RS Rankings

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings1-8-2016 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

What a week!  The equity markets saw their worst returns in history for the 1st week of a year which was not at all what I expected after last week’s modest improvement in the Intermarket RS structure.  That modest improvement was quickly eliminated with the hard drop in equities this week.  At this point, we start week 2 with all of the equity proxies in the bottom half of the list except the $QQQ which closed right in the middle spot, but after leading for the last month, that is not promising.  The only green we saw this week screamed of the flight to safety which is to be expected when equity markets have such a dismal week.  The Size and Style is lining up more from large to small at this point, but $QQQ remained on top showing large growth was still our leader even after a 7% drop this week.  There was really no place to hide this week in the broad indexes.  It felt like straight liquidation from start to finish with some potential capitulation-like action as the markets slid into the close on Friday after holding up early and then seeing over $2 billion to sell on the MOC (market on close) as we finished. It seemed no one wanted to hold anything into the weekend as panic set in.  That said, I do believe it brought us closer to a tradeable bottom for now, but don’t necessarily expect us to start next week with that.  With many of the Major indexes sitting at critical levels, it is hard to know when buyers will actually show up.   Remember, it is only the first week of the year and it always feels the worst near bottoms.  The problem is determining whether the near term bottom will be just a flash in the pan or will build into something more constructive with all the damage done in recent weeks.  The longer term investor you are, the more patient you should be here and make buyers prove their conviction.   Only the most nimble should allocate more aggressively once we see some buyers show up.  Their vacation should be over sometime soon, but whether they come back with a hangover or not is still to be seen.

Sector Relative Strength Rankings

First, I look at the Custom Indexes that I use for all the breadth work to see what they are telling us on a price weighted basis.

Broad Sector Custom Index RS Rankings1-8-2016 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings1-8-2016 Subsector CI Relative Strength

Next, I look at a Broad Sector ETF Proxy which I use Vanguard ETFs to make sure things are similar and for some tradeable ideas.  Below that is the Equal Weighted version for comparison.

Broad Sector ETF Proxy RS Rankings1-8-2016 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings1-8-2016 EW Sector Proxy ETF RS Rankings

This will differ a little due to the different make-up of the Capitalization Weighted ETFs.  If you click on the table (or here), it will take you to a page that will go much deeper into the Sector ETF Relative Strength.

Top 30 Sector ETF RS Rankings1-8-2016 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings1-8-2016 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

The sector world this week firmly reflected the defensive tone as well with Utilities being the only sector losing less than 1% and the rest of the defensive sectors showing relative strength while still being down over 2%.  The only green anywhere in the tables above were in the Precious Metals space which has been one of the most hated over the last couple of years.  Moving all the way out to the monthly performance, we only see Precious Metals, Utilities and Real Estate still holding up positive and even then you have to be in the right  spots inside those sectors.  Once we do start seeing some bounces, offensive high beta sectors should see the most reversion, but may not this time if we are starting a new full fledged bear market.  I believe buyers are likely to start to show up soon and we will get a fairly sharp snap back up to the prior support levels which should now act as resistance; however, if we can’t muster a bounce in the near term in key sectors, it will paint a much more ominous picture for at least the next few months and warrant remaining cautious until things do start to improve.  Markets do go up and down, so if you are still fully invested, use these bounces to adjust your risk to better match the market action and your outlook as the scenarios begin to play out.  The defensive sectors are where we have seen the best action recently and can continue to be actionable if markets remain weak, but in order to see more broad market improvement, we must see the heavy weights like Financials and Technology find buyers sooner than later.  The question is what will the catalyst be that can cause such a change?  The only two I see right here are earnings season which will start this week and oversold breadth washouts which we will look closer at below.

Broad Market Breadth

Universe of 3,300+ stocks from 10 custom broad sectors and 49 subsectors.  Universe contains only stocks (that are both optionable and shortable) with no Preferred stocks, CEFs, ETFs, or UITs to skew the breadth measurements.  There is a breakdown of the universe in the powerpoint presentation link at the top.

The New High-New Low Differential1-8-2016 Universe NHNL

The Advance Decline Line1-8-2016 Universe AdvDecLine

The McClellan Indicators1-8-2016 Universe McClellan

The Moving Average Breadth1-8-2016 Universe MA Breadth

Breadth Thrust Indicator1-8-2016 Universe BreadthThrust

Percent Days1-8-2016 Universe Percent Days

Last week, I was lulled into believing the lack of negative action might turn into a positive to start the year.  I was wrong and the opposite happened.  The markets fell hard and sent the breadth readings into a steep decline.   Below we see how the week ended.

Positives:

  1. NHNL has not made new lows as compared to August lows while price did close lower.  Only a potential positive divergence for now, but only if we find our lows before this indicator expands down any further.
  2. McClellan Oscillator & Breadth Thrust Indicator are both very oversold and likely nearing a bounce zone.
  3. Moving Average Breadth all fell below 20% this week which is firmly in zones to look for a bottom, but do have timeframe attached.
  4. Thursday was an 80% down day (with percent decliners at 91.62% and down volume percent at 89.44%) near previous support which should provide a bounce within 1-3 days unless we start seeing clustering signals down here which is more negative.

Concerns: 

  1. Price Trend is turning down on a longer term view with a more significant new low below the September floor.
  2. Advance Decline Line made new lows for the move with price.
  3. McClellan Summation Index gave another sell signal below zero.
  4. While firmly oversold, all the short and intermediate term indicators still have room to move lower if sellers keep the pressure on.
  5. Even if we do see momentum lows soon, we do need to keep an eye open for further price lows and potential divergences in the indicators before a final floor is found.

All of the above indicators reflected the bearish action this week sending them to the lowest levels we have seen since August-September when we saw a bottom for 2015.  Now we are seeing price take out those lows with the indicators heading down fast, but actually not making new lows yet.  This could forge longer term divergences, but we are not there yet and shouldn’t count on them.   Instead, we recognize both the negative action we are seeing and the potential to forge a bottom with the readings we are now sitting on.  This forces us to remain cautious longer term while looking for a shorter term bounce to gauge if any risk appetite can be mustered up at these levels. We are down here now, so instead of panicking, we should keep an open mind and do our best to read the action as it unfolds in the coming weeks.

Broad Sector Breadth

This can give us a first level view of the flow within the broader market.  It is a true measure of the markets’ breadth.

Broad Sector Advance Decline Line1-8-2016 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth1-8-2016 BSec MA Breadth Dashboard

Broad Sector McClellan Charts1-8-2016 BSec McClellan Dashboard

Broad Sector Breadth Thrust1-8-2016 BSec Breadth Thrust Dashboard

The New High – New Low Differential1-8-2016 BSec NHNL Dif Dashboard

After seeing all the McClellan Summation Indexes remain positive, the only one left standing this week was the Utility sector and not by much.  That really was the only place to hide.  At this point, all of the Breadth Thrust Indicators are firmly oversold with more than half at or below the lower threshold.  This suggests some reversion is likely very soon.  I find it interesting the only Breadth Thrust that was pointing higher Friday was actually Energy.  It may not be first thing as we open on Monday, but I expect to start seeing some improvement in the coming week based on these washed out indicators which can be measured to get some clues as to how far we might expect a bounce to go or how much more weakness we could expect to see in the coming months. 

Don’t forget the Breadth Compilation Charts allow you to view all the relevant breadth indicators on one chart for each sector as well as the entire universe.  One thing to look for is when breadth extremes line up in multiple indicators on a chart.

Final Note:  After such a disappointing December, I was expecting a better start to the year and we didn’t get that.  While this builds fear of something worse in the offing (which we need be open to), we have moved so far so fast I do expect some relief soon that can lift markets to higher levels that should be a better place to make longer term adjustments to portfolios.  I believe the best scenario might be to start the week down testing or penetrating those critical levels I mentioned above and then seeing some buyers show up to push us back above these critical points forming a false breakdown and potentially generate a hard squeeze to eliminate the oversold state we will enter the week in.  From my experience, most of the signs are there for a reversion move.  Fear is high, sentiment is in the toilet and the price and breadth action is stretched to the downside.  If no buyers show up, I will be more convinced a new bear market has actually started and a whole different game plan is in order for both longer term and tactical investors.  Either way, it is probably worth moving a little more tactical for now while we are figuring it out.

Have a great week!

G. Thomas Lackey Jr, CMT CFP® CFS

Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)

The information set forth herein was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy.  Neither the information, nor any opinion expressed, constitutes a solicitation by us of the purchase or sale of any securities or commodities.  There is no guarantee that the views expressed in this communication will become reality.  Investing in the stock or bond markets involves risk and potential loss of principal.  Investment strategies should be thoroughly vetted and discussed with a financial advisor prior to implementing.


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December 20, 2015 Strength In Numbers

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*If you are not on the email list and would like to review the full report each week, please email me at gtlackey@gmail.com and I will add you to the beta list.  Please include your Stocktwits or Twitter handle in the email if you have one.  You will receive a weekly email with the password to log in to the report and any updates during the week.  I do not share your email with anyone at any time.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings12-18-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings12-18-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

We ended last week with me suggesting the markets were in a tough spot, but I felt buyers were likely to show up soon.  If they didn’t, there could be bigger troubles.  Of course, we got a little bit of both this week.  Early in the week, we got the bounce we were looking for and even sustained it into the face of the FED rate hike (which I was wrong about), but then came Thursday and Friday which took it all back rather swiftly.  It was not an impressive week at all, but also not enough to signal the “bigger troubles” scenario yet; especially with it being a very heavy OPEX week, quadruple witching all with enormous Open Interest in the options markets with all the volatility of the last month.  This OPEX is usually bullish, but it seems the crosscurrents were too much this year and sellers won out.  Put it all together and ended the week on an edge once again.

The action didn’t change the Intermarket RS list a whole lot other than $UUP making a decent jump back up to 2nd spot.  All equity proxies are in the top half of the list except $IWM which was actually the best equity performer on the week.  It was slight and didn’t even register in the relative strength readings, but it seems smaller names actually saw some relative performance this week.  Heck, it is the first week in a long time $QQQ hasn’t been at the top of the Size & Style rankings, and $DIA is not exactly what we would prefer to have leading.  With most of the major indexes closing right at or below support levels on Friday, once again the early week action should be watched carefully for further breakdown or recovery in the relative strength readings.  The Intermarket RS List is still cautiously favorable to equities with the Size & Style structure deteriorating a little more. Not a great week for this section of the report as the equity markets can’t seem to get traction yet, but I am not ready to throw in the towel here yet going into the last two weeks of the year.

Sector Relative Strength Rankings

First, I look at the Custom Indexes that I use for all the breadth work to see what they are telling us on a price weighted basis.

Broad Sector Custom Index RS Rankings12-18-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings12-18-2015 Subsector CI Relative Strength

Next, I look at a Broad Sector ETF Proxy which I use Vanguard ETFs to make sure things are similar and for some tradeable ideas.  Below that is the Equal Weighted version for comparison.

Broad Sector ETF Proxy RS Rankings12-18-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings12-18-2015 EW Sector Proxy ETF RS Rankings

This will differ a little due to the different make-up of the Capitalization Weighted ETFs.  If you click on the table (or here), it will take you to a page that will go much deeper into the Sector ETF Relative Strength.

Top 30 Sector ETF RS Rankings12-18-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings12-18-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

Even though the overall markets had a losing week due to the mid week reversals, there were some sectors that held up well while others were sold harder.  Looking at the Subsector list, you had Internet and Semiconductors right near the top representing the Technology space with many of the Real Estate Subsectors not far behind in both returns and relative strength rankings.  Subsectors in Consumer Staples and Utilities were also up on the week as a defensive tone prevailed in the end.  Not that unusual to happen during weakness, bulls just don’t want it to take root.  Commodity based stocks continued to sell off in what is starting to look like potential capitulation, but we won’t know for sure until after the reversal takes place and it is hard to say when that could be or how long the reversal will last as the downtrend is well entrenched and will take a lot to truly change.

If you are watching sectors for market direction, we need some true leadership to show up in more of the heavy weighted sectors.  At least one or two more of the larger sectors like Financials, Consumer Discretionary or Industrials need to join Technology and Health Care with positive performance on weeks like these.  As long as the half strong, half weak tug-of-war we are seeing between the heavy weights continues, we won’t likely make much progress, but I am not convinced we will see a big sell-off either.  Financials were probably the most disappointing with the FED news, but even there I would not write them off yet as they are testing last week’s lows (admittedly they don’t look good here).  Once broken and closed under, it will change the read, but most ETFs in the sector are not broken yet.  I could see some stabilization or another reversal after this week’s mixed sector results on a red week.  I remain cautiously optimistic with us still in the larger ranges, but admit the short term gyrations have been more than frustrating for longer term positions.   

Broad Market Breadth

Universe of 3,300+ stocks from 10 custom broad sectors and 49 subsectors.  Universe contains only stocks (that are both optionable and shortable) with no Preferred stocks, CEFs, ETFs, or UITs to skew the breadth measurements.  There is a breakdown of the universe in the powerpoint presentation link at the top.

The New High-New Low Differential12-18-2015 Universe NHNL

The Advance Decline Line12-18-2015 Universe AdvDecLine

The McClellan Indicators12-18-2015 Universe McClellan

The Moving Average Breadth12-18-2015 Universe MA Breadth

Breadth Thrust Indicator12-18-2015 Universe BreadthThrust

Percent Days12-18-2015 Universe Percent Days

It is in the breadth readings that it starts to get more interesting to me this week and is giving me the feeling we may see that reversal into the end of the year and Santa comes after all.   Some might call me a hopeless optimist, but I didn’t see the internal selling pressure this week that I expected after we closed on Friday.  To me, it felt much worse than it is looking.   It wasn’t good and there is always a chance for that trap door from here, but as often as we see divergences pop up in breadth readings (especially the short term ones), I have a feeling that is a good chance there again.  With the custom price weighted index closing right at the previous closing lows, you can look up and see most of the indicators are currently showing potential divergences.  They don’t become active until we get the reversal, so potential is the only thing there right now, but something about the positioning of it that has my attention peaked.

Positives:

  1. NHNL while negative was not expanding as we ended the week on the lows.
  2. McClellan Oscillator & Breadth Thrust Indicator hit extremes bounce and now in a potential divergence set up that is fairly common.
  3. The 90% down day did lead to a bounce and then fade, none of which had high percent days in either direction which I consider a positive that we did not see any clustering.
  4. All of the Moving Average readings are showing divergent action at the edge of the bottom quadrant (signal line per say), so any reversal early week would potentially trigger them all.

Concerns: 

  1. All of the above positives are tentative and could be reversed quickly with an early week fall.
  2. NHNL Differential is still negative and the biggest longer term warning flag.
  3. McClellan Summation is falling and didn’t react at all to the early week bounce.
  4. The price pattern is very sloppy as the larger base or consolidation is playing out.

I try not to make too much of divergences until they actually play out, but felt the need to point out how many are out there this week not only in breadth indicators, but also other technical readings.  They are mostly short period ones since they were formed during this one week, but if those fire, it could be early this week and I find they are often pretty strong moves, again if they fire.  If they don’t, it could be another tough week leading up to Christmas.

Broad Sector Breadth

This can give us a first level view of the flow within the broader market.  It is a true measure of the markets’ breadth.

Broad Sector Advance Decline Line12-18-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth12-18-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts12-18-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust12-18-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential12-18-2015 BSec NHNL Dashboard

Clicking on the highlighted links will go to a page with the dashboards for the Subsectors.

Bumping along the bottom is the best way to describe the sector world this week.  There were sectors like Real Estate, Health Care and Utilities which showed some minor improvement, but nothing to write home about.  This is what keeps me from really beating the drum for defensive sectors right here.  Seeing only slight improvement in these sectors and no improvement in Consumer Staples breadth at all tells me defensives are not seeing the flows I would expect to surface before a major turn.  That correlation doesn’t have to hold true again, but has often accompanied or preceded major market tops in the past.

Now that I talked about all the potential negative action from an intermediate and longer term view, I also feel compelled to speak of the many potential divergences on this level as well.  They are not fully formed, but at positions that can fire and produce nice gains from a small package (pattern) when they do work.  Another angle of analysis seems to have us sitting on the same edge as the broader markets with directional potential either way from here.

Don’t forget the Breadth Compilation Charts allow you to view all the relevant breadth indicators on one chart for each sector as well as the entire universe.  One thing to look for is when breadth extremes line up in multiple indicators on a chart.

Final Note:  Now we see if the faded bounces lead to sharp drops or play out as divergences into the last two weeks of the year.  I have a hard time ruling that out because of how weak the first half of the month was and also the very strong seasonality from here until the end of the year.  According to Ryan Detrick @RyanDetrick), this is the 2nd best 10 day period of the year beginning Friday’s close.  Tough to see it here with most closing on the daily and many on the lows for the week, but my thesis since the fall was a major breadth washout in August and September, so a major top in December would not be something we would expect here.  I still see the 2011 analog playing through this move which also still fits with excessive negative sentiment we are seeing on so many measures from bulls/bear ratio, put/call ratios and bearish twitter noise.  The markets will do what they want, but notable extremes followed by divergences are exactly what most of the breadth segment of my work looks for, so I will give them the opportunity to fill out and fire before I adjust my overall views of how deep this weakness runs.  I can be wrong and a Christmas without Santa is enough to alter anyone’s view.

Have a great week and Happy Holidays however you may celebrate them!

G. Thomas Lackey Jr, CMT CFP® CFS

Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)

The information set forth herein was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy.  Neither the information, nor any opinion expressed, constitutes a solicitation by us of the purchase or sale of any securities or commodities.  There is no guarantee that the views expressed in this communication will become reality.  Investing in the stock or bond markets involves risk and potential loss of principal.  Investment strategies should be thoroughly vetted and discussed with a financial advisor prior to implementing.


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November 29, 2015 Strength In Numbers

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*If you are not on the email list and would like to review the full report each week, please email me at gtlackey@gmail.com and I will add you to the beta list.  Please include your Stocktwits or Twitter handle in the email if you have one.  You will receive a weekly email with the password to log in to the report and any updates during the week.  I do not share your email with anyone at any time.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings11-27-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings11-27-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

The short holiday week is now behind us and the markets held up well, but disappointed a few by not going straight up for the week.  They must not have been paying attention to the small caps or listening in recent weeks either.  This week took those who had leaned too hard to the large caps and teased them with the thoughts of new highs while the $IWM continued to play catch up.  Overall, most of the major indexes were flattish on the week, but Small caps turned in better than 2% returns leaving the rest behind.  This action helped the Intermarket RS lists continue to strengthen now with all 4 equity proxies in the top 5.  Of course, the rub there is the other one up there is $UUP which also gained over 2% this week.  We are not used to seeing $UUP stay this strong with equities performing well, but it can and has happened many times in the past, so it is not out of the question.  The Equity Size & Style RS List is not shaping up as well as we have seen it in past rallies.  I am not sure if this shows a broad based move or more dysfunction at the moment, but we would prefer for it to begin to align more from small to large and growth to value to really open things up.  The Intermarket list structure is favoring equities again as all of the names are solidly in the top half of the list.  The Size & Style list continues to move all over the place (I still want to improve the components here to see if we get better results with more pure plays), but did see nice moves higher in the Small cap segments.  We would like to see those Smaller names move up the list as we move into December.

Sector Relative Strength Rankings

First, I look at the Custom Indexes that I use for all the breadth work to see what they are telling us on a price weighted basis.

Broad Sector Custom Index RS Rankings11-27-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings11-27-2015 Subsector CI Relative Strength

Next, I look at a Broad Sector ETF Proxy which I use Vanguard ETFs to make sure things are similar and for some tradeable ideas.  Below that is the Equal Weighted version for comparison.

Broad Sector ETF Proxy RS Rankings11-27-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings11-27-2015 EW Sector Proxy ETF RS Rankings

This will differ a little due to the different make-up of the Capitalization Weighted ETFs.  If you click on the table (or here), it will take you to a page that will go much deeper into the Sector ETF Relative Strength.

Top 30 Sector ETF RS Rankings11-20-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings11-20-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

We don’t want to read too much into the sector picture during the short holiday week.  There were still a few things that stuck out this week.  First was the outperformance by Consumer Staples, especially food and beverage.  Staples is a defensive sector, but has seen some recent strength in small cap names in the space like $ANFI, OME and $BREW under the surface.  Some large players are stepping back up and shining like $K $HRL $TSN and especially $CPB.  The bigger players are coming to life, but aren’t known as fast movers, so if interested in the space, I would continue to focus on the smaller components that are setting up or use an ETF like $PSCC or RHS which are leading the space in the ETF Rankings.  This also plays well into the Small cap seasonality we are currently in.  I focus on this as a standout this week, but still believe it will not be a market leader in the near future as I continue to favor cyclical sectors into the new year.  Other performers for the week were Energy and Health Care which remain poorly ranked at the moment.  Energy is still basing out trying to decide which direction to go while Health Care does look to be shoring up with Medical Equipment $IHI being the top RS in the space right now with Biotechnology $XBI also perking up well.

On the other side, Utilities and Technology were only two to give much back this week.  Technology just looked like it took the whole holiday week off while Utilities continue to be rejected on each attempt higher, but aren’t breaking down either.  This range shows the dilemma over the economic outlook and potential rate hike from the FED.  This sector probably has the most crosscurrents in this environment as a place to chase yield when rates are low and the potential to struggle with debt burden and output if rates increase without the economy showing marked improvement.   Watching the potential flag in $XLU is all we can do for now.  Investors will make their decisions on Utilities as we move toward the December FED meeting in coming weeks (yes, I am still in the lower longer camp and a raise in December is NOT a given).  Unlike Utilities, Real Estate is performing pretty well during the rate dilemma and is probably the better of the two right now.

Don’t read too much into this week, but the RS message continues to lean toward cyclicals with Technology, Industrials, and Financials all near the top.  For those looking at swing trades here, don’t be afraid to play some of the small cap or equal weight sector ETFs listed on the Sector ETF RS Page.  Smaller names in strong sectors could provide a potential boost from the small cap seasonality in coming weeks.  It is really something wonderful when we can quickly search out and find a security (ETF) that is so focused on a specific theme yet still give us diversification to ease some of the individual company risk involved.

Broad Market Breadth

Universe of 3,300+ stocks from 10 custom broad sectors and 49 subsectors.  Universe contains only stocks (that are both optionable and shortable) with no Preferred stocks, CEFs, ETFs, or UITs to skew the breadth measurements.  There is a breakdown of the universe in the powerpoint presentation link at the top.

The New High-New Low Differential11-27-2015 Universe NHNL

The Advance Decline Line11-27-2015 Universe AdvDecLine

The McClellan Indicators11-27-2015 Universe McClellan

The Moving Average Breadth11-27-2015 Universe MA Breadth

Breadth Thrust Indicator11-27-2015 Universe BreadthThrust

Percent Days11-27-2015 Universe Percent Days

Universe breadth performed well this week even with the major indexes flat.  This kind of quiet improvement is always welcome.  Let’s take a look:

Positives:

  1. NHNL swung back positive this week by a little.  Moving averages pointing up, but still negative.
  2. Moving Average Breadth all pointing higher with %>200sma making new high for the move.
  3. McClellan Summation Index crossed the signal and zero this week.
  4. McClellan Oscillator & Breadth Thrust Indicator still pushing hard off the extremes last week.

Concerns: 

  1. NHNL Differential is still anemic and needs all 3 signals positive to reset the count.
  2. Advance Decline Line and Price both need to make a higher high here to come off the concern list, but both are really close.

The Universe followed Small caps with a solid week improving most of the breadth pictures all the way up the spectrum.  The %>200sma and McClellan Summation are two showing very important improvements at this juncture helping shape up the intermediate and long term possibilities from this point.  Expect some ebb and flow, but as long as we stay on this path it continues to confirm the major bottoming action in the August/September breadth washouts and divergences similar to what we saw in 2011.

Broad Sector Breadth

This can give us a first level view of the flow within the broader market.  It is a true measure of the markets’ breadth.

Broad Sector Advance Decline Line11-27-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth11-27-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts11-27-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust11-27-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential11-27-2015 BSec NHNL Dashboard

Clicking on the highlighted links will go to a page with the dashboards for the Subsectors.

Sector breadth continues to improve off the fall lows as well.  Looking at the Advance Decline Dashboard, we can see solid gains in all of the lines except Energy and Basic Materials, which even Materials is making some headway now when I zoom in.  Energy is not there yet.  Don’t forget in last week’s report, Energy and Basic Materials accounted for less than 6% of the $SPY at this point, so if all the others are improving, we are likely to continue to see strong markets.  We have discussed the breadth progression in past reports that starts with the shortest indicators firing followed by the intermediate and then finally the longer term readings will join it.  The Advance Decline Line is in our longer term bucket and is now reacting well here as this move becomes more than just a bounce off the lows.  It is not just the Advance Decline Lines.  Looking at the rest of the sector breadth picture, they are all acting pretty well off the lows.  From Moving Average readings to the McClellan Chart, breadth is improving with the markets after taking the first half of the year off.  The final piece will come if/when the NHNL differentials start popping off new highs in earnest.  This being the longest measurement is usually the last to turn, but the broad improvement from the rest of the breadth indicators is the progression we need to get there.

Don’t forget the Breadth Compilation Charts allow you to view all the relevant breadth indicators on one chart for each sector as well as the entire universe.  One thing to look for is when breadth extremes line up in multiple indicators on a chart.

Final Note:  This week was a win for the bulls in my book with Small caps taking the lead and running their own race while the larger names took a rest without breaking down.  It seems the buyers on weakness are back and not waiting too long to start nibbling.  Whatever the reason, these markets are being accumulated as we move into December.  I believe this can continue as portfolio managers are lagging after getting too defensive in the fall and need to play catch up.  I think this will keep the dip more shallow in the coming weeks as they struggle to get repositioned.  Seasonality will provide support through the end of the year, but I do expect some give and take as tax selling and other end of the tactics are employed.  I still think a hard test of the highs before the end of the year (or in January latest) is very possible for all indexes, including the $IWM.  How we act during those tests will likely write the next chapter of this book.  Don’t expect a tragedy until we find a better antagonist than the ones we have now.  “Because the trend is long in the tooth” or FEDDIE raising .25% are not likely to be the death of this relentless action.   These are things that are known at this point and have probably been priced in by many.  They may cause more volatility, but bear markets are driven by heavy selling and a lack of buyers.  Neither of those are present right here right now.  The September retest was their chance and it slipped away for now.

Have a great week!

G. Thomas Lackey Jr, CMT CFP® CFS

Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)

The information set forth herein was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy.  Neither the information, nor any opinion expressed, constitutes a solicitation by us of the purchase or sale of any securities or commodities.  There is no guarantee that the views expressed in this communication will become reality.  Investing in the stock or bond markets involves risk and potential loss of principal.  Investment strategies should be thoroughly vetted and discussed with a financial advisor prior to implementing.


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September 27, 2015 Strength In Numbers

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*If you are not on the email list and would like to review the full report each week, please email me at gtlackey@gmail.com and I will add you to the beta list.  Please include your Stocktwits or Twitter handle in the email if you have one.  You will receive a weekly email with the password to log in to the report and any updates during the week.  I do not share your email with anyone at any time.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings9-25-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings9-25-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

This week’s market action makes for strange bedfellows as $UUP was positive along with $DBC $DBA $GLD and even $USO eked out a gain.  As interesting as it might be, this uncertainty is not favorable for the equity market which all lost ground on the week leaving all 4 proxies in the bottom half of the list still.  It is hard to trust things when the macro alignment is as we see it here.  The Size & Style list also lost ground this week with Small Cap segments falling to the bottom of the list while growth areas also gave ground.  This move heightens level of caution that this will ultimately see a more significant retest of the lows.  It still is likely to have some back and forth before we do get a full retest, and a harsh snap back to the top of the range would not surprise me, but both of these RS lists are getting less favorable to the equity case.  Until that improves, it is worth being on higher guard.

Sector Relative Strength Rankings

First, I look at the Custom Indexes that I use for all the breadth work to see what they are telling us on a price weighted basis.

Broad Sector Custom Index RS Rankings9-25-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings9-25-2015 Subsector CI Relative Strength

Next, I look at a Broad Sector ETF Proxy which I use Vanguard ETFs to make sure things are similar and for some tradeable ideas.  Below that is the Equal Weighted version for comparison.

Broad Sector ETF Proxy RS Rankings9-25-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings9-25-2015 EW Sector Proxy ETF RS Rankings

This will differ a little due to the different make-up of the Capitalization Weighted ETFs.  If you click on the table (or here), it will take you to a page that will go much deeper into the Sector ETF Relative Strength.

Top 30 Sector ETF RS Rankings9-25-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings9-25-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

Not much green on the screen for the week we just ended.  The lists are ordered clearly in a defensive position with Utilities, Real Estate and Consumer Staples dominating all the top positioning.  As I mentioned last week, while we are working through this phase, we should see new leadership begin to emerge.  They will be the sectors that stop making new lows and are more flat on down days while exerting strength on up days.   After just a little bit of this type of action, you can start to see the separation by such sectors.  While the defensives are clearly leading here during the volatility (and have an interest rate tailwind), I am not ready to say they are the real new leaders.  I would rather wait until we start to see some improvement and then look back to assess.  This way we don’t jump the gun, and if the trend really is ready to improve, these pockets of strong action will start to cluster in the sectors and give us our clues.  For now, the defensives are clearly leading and will likely continue as long as the fear remains palpable, but I don’t think anything is a given in this volatility.  If opportunities present themselves, adjust for the heightened risk accordingly and be willing to take profits quicker when the markets present them.  The longer term an investor you are, the more patient you should be here until the relative strength picture as a whole begins to improve.

Broad Market Breadth

Universe of 3,070+ stocks from 10 custom broad sectors and 49 subsectors.  Universe contains only stocks (that are both optionable and shortable) with no Preferred stocks, CEFs, ETFs, or UITs to skew the breadth measurements.  There is a breakdown of the universe in the powerpoint presentation link at the top.

The New High-New Low Differential9-25-2015 Universe NHNL

The Advance Decline Line9-25-2015 Universe AdvDecLine

The McClellan Indicators9-25-2015 Universe McClellan

The Moving Average Breadth9-25-2015 Universe MA Breadth

Breadth Thrust Indicator9-25-2015 Universe BreadthThrust

Percent Days9-25-2015 Universe Percent Days

The custom index price chart looks to be breaking down the flag or wedge that developed over recent weeks.  It may morph into another pattern, but the simple break here brings the chance of a harder retest up a few notches.  The breadth data is supporting that idea too as it is hard to find many positives out of the action.  It is likely we have seen the momentum and breadth extreme lows for this move, but the price lows could still be in front of us.

Positives:

  1. McClellan Summation is just kissing as of Friday and this is the best I could do for a positive… Actually, a solid divergence here would be great, but that would mean new lows first.

Concerns: 

  1. NHNL Differential was negative all week and is curling the moving averages back down at this point.
  2. MA Breadth gave back a lot of ground pushing the Intermediate & Long term readings back into the bottom quadrant.
  3. Advance Decline Line forged another lower high.
  4. 80% day on Tuesday was not a catalyst for any recovery by the end of the week.

My mantra in recent weeks has been the long term breadth picture was still a concern, but if the short term readings could continue to stay strong, we might be able to go ahead and move out of this.  Well, those short term readings did in fact deteriorate heavily this week with the market action.  This is putting the retest front and center in this section as well (pattern seems pretty clear doesn’t it, maybe too clear?), and it also has us looking at how the breadth reacts if we do in fact move to lower lows.  The path of least resistance seems like it is down now, but when we are down in these zones it doesn’t take much to form a divergence which we always like to see in the latter stages of corrections.

Broad Sector Breadth

This can give us a first level view of the flow within the broader market.  It is a true measure of the markets’ breadth.

Broad Sector Advance Decline Line9-25-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth9-25-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts9-25-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust9-25-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential9-25-2015 BSec NHNL Dashboard

Clicking on the highlighted links will go to a page with the dashboards for the Subsectors.

Just as we noticed in the universe breadth readings, here we are also seeing most of the short term readings giving up all the improvement we had seen.  There are some sectors performing decent, but those are mostly defensives.  The consumer is still doing okay too, but nothing to really draw our attention there yet.  Financials showed some strength this week as well which was a bit surprising so we will take note and see if it can continue to improve next week.  Health Care was on the opposite side of things this week as it got caught in the political crosswinds, but this didn’t cause all the selling.  That was a very full boat, so I would expect increased volatility there for a while in both directions after such a strong trend; which means we will need to find new leadership to drive the next leg.  Some of the larger weighted sectors will have to step up before we can expect the markets overall to gain any traction.  It could happen anytime, but with everything else pointing to a retest, I would use the sector action to spot early improvement in sectors where we do find a bottom.  We see the defensives like Utilities, Real Estate and Consumer Staples leading in breadth action.  Go with it as long as it continues, but be watching for the emergence of some more cyclical sectors to clue us into more internal improvement which can better support a rally attempt.

Don’t forget the Breadth Compilation Charts allow you to view all the relevant breadth indicators on one chart for each sector as well as the entire universe.  One thing to look for is when breadth extremes line up in multiple indicators on a chart.

Final Note: Markets did not deal well with the setup they were dealt after last week’s FED reversal.  The selling continued to win out and many indexes are breaking potential corrective patterns off the August lows.  Almost all the action points to the retest scenario as the highest probability, but everyone seems to be expecting it this week.  That has me preparing for it, but I also would not be taken aback at all if we rallied hard into the end of the quarter and maybe the whole week.  This goes with the idea that markets rarely do what everyone is watching for, but they often surprise us.  Even if we were to see such a bounce, it would take a good bit of internal improvement for me to see it as anything more than just a bounce.  Actually, I would say the harder and more violent the bounce, the more likely it could fail.  Unless, of course, that violence is accompanied by exceptional action under the hood and showed very broad participation.  With this bifurcated view of where we go, many investors might want to just step aside and wait until we actually see such internal improvement.  Only those willing to make the short term decisions as necessary should be trying to position with all the crosscurrents we are wading through at this juncture.  This too shall pass, but when is still a big unknown to all of us. 

Have a great week!

G. Thomas Lackey Jr, CMT CFP® CFS

Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)

The information set forth herein was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy.  Neither the information, nor any opinion expressed, constitutes a solicitation by us of the purchase or sale of any securities or commodities.  There is no guarantee that the views expressed in this communication will become reality.  Investing in the stock or bond markets involves risk and potential loss of principal.  Investment strategies should be thoroughly vetted and discussed with a financial advisor prior to implementing.


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August 30, 2015 Strength In Numbers

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*If you are not on the email list and would like to review the full report each week, please email me at gtlackey@gmail.com and I will add you to the beta list.  Please include your Stocktwits or Twitter handle in the email if you have one.  You will receive a weekly email with the password to log in to the report and any updates during the week.  I do not share your email with anyone at any time.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings8-28-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings8-28-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

How do you really start a review after the week we just had?  It was very rare market action overall that in the end succumbed to the normal market pressures.  Once you get so far to one extreme, more often than not, we see a reversal.  How long that reversal lasts is yet to be known, but hints will surface as the bounce unfolds.  There are many folks on both sides that are making great cases for where we are going next and any one of them could be right.  Most are worth considering, but once you do, keeping an open mind is the best course of action over the next month or so.  I am not going to go through all the memes about end of summer, FED tightening, China, et al.  Instead, we will go through the data and decipher what we can out of last week to help us next week, but putting too much weight into one week’s action is never a good idea.   Keep your ear to the ground, eyes on the charts, and follow your plan and you should come out the other side okay once the dust settles.

The week started wild with a huge gap down on Monday equaling all of last week’s losses which shortly after opening turned into a very quick waterfall that was recovered by the end of the day.  We still closed down on the day, but some crazy one day ranges were forged in many stocks, ETFs and major indexes.  There was very little if anything safe during that opening slide.  The order flow was also a mess as many orders were in but never got executed all over the place.  Spreads on options blew out from nickels and dimes to dollars making it difficult to take advantage there either.  Not that many were expecting such a move, but even if you were, it was difficult to take advantage of it during the couple of minutes it persisted.  After all of that on Monday, it looked as if Tuesday was going to gap and go until midday when markets started selling off and couldn’t hold.  That was a more ominous point considering how oversold and washed out most breadth and momentum readings already were.   Luckily, buyers realized the disconnections and kept fighting back until all of the Equity proxies ended the week positive.  A terrific feat after how we started which is a message in and of itself.  This left the Equities in the middle to lower half of the Intermarket list remaining in an unfavorable position.  Bonds, Gold and the Dollar are filling the top ranking showing the safe haven positioning during this volatility.  Even so, I think it should be noted all equities closed green; they have a lot of heavy lifting to do to get back in the game though.

I am pleased to see how many of the growth segments moved back toward the top of the Size & Style list this week.  This showed that after the selloff, the appetite was for growth companies and not value plays.  This was not mom and pop, it was institutions making moves they feel have value in a time of turmoil and they still prefer the growth story.  Many of the next set of leaders should come from the ashes, but make sure you look at them objectively because many will be all new names.  Intact stories like $FB $NFLX $ILMN and many names in $XBI in general can continue to lead after big shakeouts.  Sometimes they will even flourish more because the next round of institutions is comfortable (and sometimes anxious) to load up at this fresh discount.

That is the more positive scenario of where we go from here and is the roadmap to the potential for the V-ehemoth move back to the highs I alluded to this week.  This is not the highest probability scenario, but would likely have the highest impact as so many would be caught off guard by such a move.  The higher probability seems to be higher volatility going forward as we reach all the new resistance (supply) zones on the way back higher.  The level of extremes we hit (see below) were enough to forge a larger bottom, but is often followed by a month or two of basing before moving higher.  This is one of the big reason many are rightfully cautious.  If this basing comes, we could remain in this range through the October seasonality.  This type of action would be almost as frustrating as the drop for many investors as their conditioning is for an immediate rebound back to the highs.  The biggest reason I question the likelihood of longer basing action is the long sideways box the markets have been in most of the year.  Alternation suggests after such a sideways tight volatility move, we are more likely to see higher volatility, which is most often associated with down moves, but can also be higher.  This has me leaning to a more directional move over the next few months.  The part we can’t know right now is which way?  So far, Relative strength readings are still mixed with a small glimmer of light shining through in the Growth segments, but it is too soon to get a solid reading on how things will shake out.

Sector Relative Strength Rankings

First, I look at the Custom Indexes that I use for all the breadth work to see what they are telling us on a price weighted basis.

Broad Sector Custom Index RS Rankings8-28-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings8-28-2015 Subsector CI Relative Strength

Next, I look at a Broad Sector ETF Proxy which I use Vanguard ETFs to make sure things are similar and for some tradeable ideas.  Below that is the Equal Weighted version for comparison.

Broad Sector ETF Proxy RS Rankings8-28-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings8-28-2015 EW Sector Proxy ETF RS Rankings

This will differ a little due to the different make-up of the Capitalization Weighted ETFs.  If you click on the table (or here), it will take you to a page that will go much deeper into the Sector ETF Relative Strength.

Top 30 Sector ETF RS Rankings8-28-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings8-28-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

Sectors turned in mixed weeks in all the mess which makes sense.  There was a lot of jockeying through the week as things moved fast.  One of the interesting things to note was how Utilities and Real Estate both ended up the worst performers even with their normal defensive labeling.  As I mentioned above, it really looked like buyers wanted to buy up beaten down growth names.  Putting these two observations together does not paint a picture of perceived despair in the near future.

The most notable sector gaining relative strength was Consumer Discretionary making big RS moves on all the sector measurements we take.  I will be digging deeper into this space after I finish the report and will let you know what I find, but for now it looks like it wants to differentiate itself during this mess.  A look down into the Top 30 list gives a few in this space to note.  We have seen $ITB $XHB performing well into the recent slide; we are now seeing the broad ETFs like $XLY $VCR have popped back onto the list.

Energy and Basic Materials are still at the bottom of the rankings, but had the strongest weeks which is worth noting.  It is too early to tell if anything will come of it, but often big shifts in favor can come during washouts like we saw over the last couple of weeks.  A change in character from here would not be out of the question given how bad numbers and sentiment have been here for a while now.  If you are going to try here, have a plan and start with the strongest in the sector, not the weakest.

Overall, there was a ton of damage in the sector world along with the broad markets, so it is too early to see how things will settle out and if the worst is over or not and there is no reason to be too aggressive yet.   However, during the heat of the battle this week, defensive sectors performed worse than cyclical and growth oriented ones.  I think that might be our first clue this is not going to be as bad as many suspect and I don’t think many are seeing that going into next week.  Take things slow and look for setups to materialize.  They don’t have to take weeks to form.   In this environment, a nice 2-4 day flag or pennant is enough to recharge for the next stab at resistance above, so be ready.  How it handles those stabs will be the ultimate arbiter to where we go next.

Broad Market Breadth

Universe of 3,070+ stocks from 10 custom broad sectors and 49 subsectors.  Universe contains only stocks (that are both optionable and shortable) with no Preferred stocks, CEFs, ETFs, or UITs to skew the breadth measurements.  There is a breakdown of the universe in the powerpoint presentation link at the top.

The New High-New Low Differential8-28-2015 Universe NHNL

The Advance Decline Line8-28-2015 Universe AdvDecLine

The McClellan Indicators8-28-2015 Universe McClellan

The Moving Average Breadth8-28-2015 Universe MA Breadth

Breadth Thrust Indicator8-28-2015 Universe BreadthThrust

Percent Days8-28-2015 Universe Percent Days

There you have it.  Monday was somewhat crash like, but didn’t last very long at all.   The breadth picture spiked down to levels not seen in many cases since 2011 or even 2009.  I can narrate just like anyone, but instead let’s look at what came out of it.

Positives

1. NHNL Differential hit a major extreme this week often seen near multiyear lows, less often at the beginning of major downturns.

1. Back to back 80% down days followed by a 95% down day produced a strong reflex as it was followed by back to back 80% up days.

2. McClellan Oscillator & Breadth Thrust surges are notable and trying to break the recent downtrends.

3. Moving Average Breadth has %<20sma firing an early buy signal with %>200sma close and %>50sma following.  If all 3 turn to buy shortly, it is often a strong signal. Alignment like this doesn’t happen often.

4. McClellan Summation Index is nearing major lows and trying to turn after 3 failed signals which is rare on this indicator.

Concerns: 

1. NHNL still negative overall and all 3 sell signals still active.

2. Advance Decline Line is trending down and made another lower low.

3. New lower range could be trying to form for price below the breakout/breakdown point putting us back in the previous range.  If we don’t spring right back higher, it could get stuck for a while under this important level.

The breadth picture is still pretty negative on the longer term measures and less consequential on the shorter term ones after last week’s move. That said, the thrusts off the lows measured strong and have a chance to forge a reset in the markets if we don’t break back down hard from here.   If we do hold at levels near here, it won’t really matter whether it is a V or a longer base by the end of the year, but finding what sectors are showing leadership as it unfolds still matters.  If this does forge a reset, we should be looking for emerging leaders with a fresh eye as every area of the market has been humbled at some point in 2015 which is a lot of what is needed for such a reset to occur.  We may not in fact be out of the woods yet as there is a lot of improvement needed to set the long term measures right, but the short term are improving and the intermediate measures are starting to turn from very low levels.  This is where it often starts, especially if the fewer people believe it can.

Broad Sector Breadth

This can give us a first level view of the flow within the broader market.  It is a true measure of the markets’ breadth.

Broad Sector Advance Decline Line8-28-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth8-28-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts8-28-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust8-28-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential8-28-2015 BSec NHNL Dashboard

Clicking on the highlighted links will go to a page with the dashboards for the Subsectors.

Most of the sector breadth readings are still sitting near lows on all but the shortest of measures.  NHNL readings saw spikes down to levels not seen since 2011 and the %>SMA readings are clustered in the bottom quadrants on most of the charts.  Everything got whacked and is now trying to find its footing, which can take a little time after such a big stretch.  Now that everything got chopped, there are positive relative value and technical arguments all over the place making the allocation decisions a little more difficult to decipher until new trends are formed.  Therefore, I don’t think it makes much sense for us to read a lot into these levels right here, but makes every bit of sense to monitor things closely for leaders and laggards over the next few days to weeks.  How we proceed from here should be very telling.

Don’t forget the Breadth Compilation Charts allow you to view all the relevant breadth indicators on one chart for each sector as well as the entire universe.  One thing to look for is when breadth extremes line up in multiple indicators on a chart.

Final Note:  The markets made a dramatic move down this week and an equally dramatic recovery.  This is the type of action we see more in down markets than we do up moves, but once you move to the extremes we have, you need to start taking a step back and look at things a little differently.  The consensus is we are likely starting a new larger downtrend that can take us to lower levels into the fall and potentially signal a new cyclical bear.  That is something we should be prepared for as there is mounting pressure on the long term uptrend we have been in.  We are close to many major trendlines that should be watched, but I say again, we are still not there yet.  We have not broken many of the major trends this bull market has ushered in.  However, something changed in the recent action.  It doesn’t mean we are doomed, but it does favor a fresh eye from here; and that is very hard for most of us as our recent experiences are burned into our psyche and can take time to fade.  

No matter which side you are on, 2015 has been a very tough environment to maneuver.  The next path could be down and we need to have that plan in our playbook, but if the markets are resetting here (which we have many of the hallmarks showing here), taking this fresh eye exercise can prove very valuable in spotting new strength and leadership from where ever it shows up.  Taking biases through such a flush can throw you out of sync if the markets decide to start a new course as they often do.  Next week’s action might actually be more important than this week’s, not for the record books, but for what opportunities lie ahead which is what really matters in the end.

Have a great week!

G. Thomas Lackey Jr, CMT CFP® CFS

Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)

The information set forth herein was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy.  Neither the information, nor any opinion expressed, constitutes a solicitation by us of the purchase or sale of any securities or commodities.  There is no guarantee that the views expressed in this communication will become reality.  Investing in the stock or bond markets involves risk and potential loss of principal.  Investment strategies should be thoroughly vetted and discussed with a financial advisor prior to implementing.


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Strength In Numbers Market Breadth Review Video – 8/22/2015

Tags : 

A video review of the Macro breadth charts in the Strength In Numbers report for August 22, 2015.  If you are not getting the report and would like to, email me to gtlackey@gmail.com

G. Thomas Lackey Jr, CMT CFP® CFS

Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)

The information set forth herein was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy.  Neither the information, nor any opinion expressed, constitutes a solicitation by us of the purchase or sale of any securities or commodities.  There is no guarantee that the views expressed in this communication will become reality.  Investing in the stock or bond markets involves risk and potential loss of principal.  Investment strategies should be thoroughly vetted and discussed with a financial advisor prior to implementing.

 

 


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August 9, 2015 Strength In Numbers

Tags : 

*If you are not on the email list and would like to review the full report each week, please email me at gtlackey@gmail.com and I will add you to the beta list.  Please include your Stocktwits or Twitter handle in the email if you have one.  You will receive a weekly email with the password to log in to the report and any updates during the week.  I do not share your email with anyone at any time.*

For more background on this report check out Strength In Numbers Explained.  Previous reports can be read here.

Macro Relative Strength

8-7-2015 Intermarket RS

Intermarket ETF on FINVIZ

8-7-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

And, in an instant, last week’s headway turns into a headwind.  After looking like we were ready start moving again, the sellers showed up and pushed these markets back down toward the bottom of their respective ranges.  $IWM took the biggest hit on the week and lost relative positioning on both lists.  The Intermarket list saw $TLT $UUP $IEF make runs back to the top of the list dethroning $QQQ in a risk off week.  All the equity proxies took relative hits, but $DIA was the only one to fall out of the top half.  That’s a macro warning sign when equities fall from the upper half of the list.  So far, we only have $DIA doing so, but it heightens our alerts.

The Equity Size & Style list is also getting messy again.  Growth is still on top, but the small cap slippage is once again concerning.  It may just be a time to focus more on mid to larger growth names, but until it shores up some, the small cap weakness is another caution to add with the Intermarket list.  Both lists remain mildly favorable overall after last week’s action, but are deteriorating some at the moment.  Being in the long term range, a quick move higher can go a long way to help fix things, but we must also be open to seeing a range expansion to the downside too.  Cautions are there, but if the charts shore up here, it will provide great support opportunities once again.

Sector Relative Strength Rankings

First, I look at the Custom Indexes that I use for all the breadth work to see what they are telling us on a price weighted basis.

8-7-2015 Broad Sector CI Relative Strength 8-7-2015 Subsector CI Relative Strength

Next, I look at a Broad Sector ETF Proxy which I use Vanguard ETFs to make sure things are similar and for some tradeable ideas.  Below that is the Equal Weighted version for comparison.

8-7-2015 Sector Proxy ETF RS Rankings 8-7-2015 EW Sector Proxy ETF RS Rankings

This will differ a little due to the different make-up of the Capitalization Weighted ETFs.   If you click on the table (or here), it will take you to a page that will go much deeper into the Sector ETF Relative Strength.

Top 30 Sector ETF RS Rankings8-7-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings8-7-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

I guess it isn’t really a big surprise that during a risk off week Utilities were one of the few areas that ended positive and Consumer Staples, while not positive on the week, continued to climb the RS Lists claiming the top spot on both the proxy and equal weight lists.  It didn’t get there on my price weighted sectors, but again it made headway.  Nice to see after we highlighted both of these sectors in recent weeks.  Some relatively bright spots in this week’s storm.  The sectors that remained weak were energy and other commodity plays as they were struggling to find any traction.  I think we are very close to some positive action in these based on my review this weekend, but I haven’t expected this much of a washout either, so take that for what you will.  If they do move, I believe it could give some relief to the broader markets as it relieves some pressure even if it becomes fleeting.

On the stronger side, we did mention Consumer Staples, but we are also still seeing decent action out of Health Care, Financials, Tech and Consumer Discretionary which have been our leaders up to this point.  Yes, I know Health Care took a hit this week that has many talking about the end to this trend.  It could be, but one week doesn’t carry that much weight in my book after such a great trend.  The other three are more cyclical in nature which suggests to me we are battling in this range, but still in an uptrend with faint leadership from cyclical and growth areas which is what we want to see accompany a trend like this.  It is starting to feel like that leadership could be fading away, but if so, we are early in that process.  Don’t confuse leadership here with participation (breadth); we will get to that in a few minutes.  If the leadership fades without a successor, it gets more ominous.  If the leadership can re-emerge after a rest or rotate to another sector again, we still have a good opportunity for another move higher to continue the trend.

Broad Market Breadth

Universe of 3,070+ stocks from 10 custom broad sectors and 49 subsectors.  Universe contains only stocks (that are both optionable and shortable) with no Preferred stocks, CEFs, ETFs, or UITs to skew the breadth measurements.  There is a breakdown of the universe in the powerpoint presentation link at the top.

The New High-New Low Differential8-7-2015 Universe NHNL

The Advance Decline Line8-7-2015 Universe AdvDecLine

The McClellan Indicators8-7-2015 Universe McClellan

The Moving Average Breadth8-7-2015 Universe MA Breadth

Breadth Thrust Indicator8-7-2015 Universe BreadthThrust

Percent Days8-7-2015 Universe Percent Days

After getting a short bounce out of the extreme readings we saw in recent weeks, we are back down testing the bottom of the range which is definitely taking a toll on the breadth picture.  It is not out of bounds yet, but the lack of follow through in the short term reversals and the longer term deterioration is throwing out a couple of red flags we should be conscious of.

Positives:

1. Custom Index still above the last breakout of the previous range.

Concerns: 

1. NHNL Differential has triggered all 3 sell signals as it drops below last October levels pulling both moving averages negative as well.  This is a longer term red flag since it didn’t get negated quickly.

2. Advance Decline Line is trending down.

3. Short term breadth extremes fizzled out quickly under selling pressure.

4. All MA Breadth measures are below 50% and none in extremes.

5. McClellan Summation Index is trying to rollover again way below zero.

The only real positive to point out this week is the price action, but that is all that matters in the end though.  All of the indicators are weak and are sending off significant warnings, but if price doesn’t follow, then neither do we.  The price weighted index is still above the recent lows and previous breakout.  If we can get traction here, it would be another test of this level solidifying its importance and giving an easy place for stop placement.  That said, the burden is really on the buyers here to negate the long term breadth sell signals we have.  This is the most cautionary flags we have seen here in a long while.  They are not to be taken lightly, but they do fail from time to time and have done so already during this trend.  It is not an easy ready, but always remember that indicators are for guidance, price is for action.

Broad Sector Breadth

This can give us a first level view of the flow within the broader market.  It is a true measure of the markets’ breadth.

Broad Sector Advance Decline Line8-7-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth8-7-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts8-7-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust8-7-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential8-7-2015 BSec NHNL Dashboard

Clicking on the highlighted links will go to a page with the dashboards for the Subsectors.

The message here isn’t a whole lot different than the broad readings.  The short term breadth extremes we had worked off the lows, but fizzled fast in all but a few (and mainly defensive) sectors.  The only area we are seeing some signals in is Energy which has been brutal in recent weeks.  Many of the breadth indicators have started to show divergences from extreme levels over the last two weeks.  Not too surprisingly, the shorter term indicators like Breadth Thrust, McClellan Oscillator and %>20sma are doing so, but what did catch my attention was the divergence of the NHNL Differential both in recent weeks and from the lows made back in December.  This is worth knowing if we do start to see positive action there finally.  The longer trading range has taken a toll on the participation in sectors as well.  There is not a lot to get excited about in the action.  Defensive sectors like Utilities, Real Estate and Consumer Staples have the most improved participation recently.  The Energy divergences are getting really interesting, and the cyclical sectors are just treading water while taking sporadic hits during the malaise.  No reason to get too aggressive until you see some clearer direction develop.

Don’t forget the Breadth Compilation Charts allow you to view all the relevant breadth indicators on one chart for each sector as well as the entire universe.  One thing to look for is when breadth extremes line up in multiple indicators on a chart.

Final Note:  The length of the current range is starting to magnify emotions which generally increases the noise around bad outcomes.  We have been in an uptrend for a long time and that has everyone feeling a correction is inevitable; in the grand scheme of things, it is, but at what price will it start?  Once again, it comes back to price.  We spend most of our time in this report breaking down the markets to get an idea of how different sectors and segments are performing.  We look at many indicators to help gauge this participation and flow, but ultimately the price action is the decision maker.  The rest is our guide so we are not too surprised by the outcome.  The more surprised, the less grounded our reaction is likely to be.  We could have a bad outcome from this deterioration we have been seeing, but we aren’t there yet.  Closer than we have been in a while, but still Not There Yet…

Have a great week!

G. Thomas Lackey Jr, CMT CFP® CFS

Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)

The information set forth herein was obtained from sources which we believe to be reliable, but we do not guarantee its accuracy.  Neither the information, nor any opinion expressed, constitutes a solicitation by us of the purchase or sale of any securities or commodities.  There is no guarantee that the views expressed in this communication will become reality.  Investing in the stock or bond markets involves risk and potential loss of principal.  Investment strategies should be thoroughly vetted and discussed with a financial advisor prior to implementing.


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