Tag Archives: Subsector

  • -

January 10, 2016 Strength In Numbers

Tags : 

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.


  • -

January 3, 2016 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.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings12-31-2015 Intermakret ETF RS Rankings

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings12-31-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

So, when it was all said and done, Santa may have come to your house, but his pre-Christmas visit to Wall Street was shortlived.  In fact, the entire month of December was a pretty big disappointment with the ONLY green in either of the lists over the last month being $JJC.  Yes, Copper actually put in a solid month while still having the 3rd worst return for the quarter on the Intermarket RS List.  A strange month and year on many different levels.  I won’t go into those details as there are many like @RyanDetrick , @SentimentTrader and @Bespoke who have posted plenty of market statistics showing this was truly an odd year.

That said, this week in these RS lists, we actually saw a little structural improvement which surprised me a little, but could turn out a good early hint we may see some improving action early year.  Of course, this is based on relative strength rankings, so it could just be the least negative, but I am not looking for that at this point.  In the Intermarket RS list, $IWM finally moved back into the top half of the list with the other three equity proxies sitting at the top.  The improvement in the Size & Style list was not as pronounced, but we did see most Growth segments moving higher with $IWC & $IWO making the largest jumps.  Seeing these types of improvements in weak markets tends to be favorable for the markets and suggests to me we may have a decent January ahead of us.  With the $SPY $QQQ $DIA only a few percent off their highs at retest or potentially penetration, it wouldn’t surprise me if we see some early buyers.  The question is where will the want to put their capital?

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 Rankings12-31-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings12-31-2015 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 Rankings12-31-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings12-31-2015 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 Rankings12-31-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings12-31-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

Dropping down to the sector level, there are few bright spots, but when you get down to the Subsector level, we see a few more opportunities.  From a broad sector perspective, Consumer Staples and Utilities saw some green showing the defensive edge.  But when you drop down to the all sector ETF scans, 15 of the top 30 were green with Alternative Energy ETFs as the standouts.  However, as I mentioned above, looking for RS gains in a weak market can help spot the next set of leaders if the markets do perform; and currently Health Care, Real Estate and Basic Materials are starting to stand out on both the sector and subsector levels.  Of course, Energy Pipelines made a big jump, but still only sit at 30, so there is plenty of work to do there and the rest of the sector is not catching on yet, so it will be a tough road to hoe if they don’t wake up soon.  Overall though, these RS Gainers during a weak tape are the areas I will be focusing on this week for new opportunities, but we still need to see other large sectors like Financials, Technology and Industrials get some footing or the broader markets will remain weak.

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 Differential12-31-2015 Universe NHNL

The Advance Decline Line12-31-2015 Universe AdvDecLine

The McClellan Indicators12-31-2015 Universe McClellan

The Moving Average Breadth12-31-2015 Universe MA Breadth

Breadth Thrust Indicator12-31-2015 Universe BreadthThrust

Percent Days12-31-2015 Universe Percent Days

Even though the markets lost ground this week and the Major indexes gave back a good bit of the gains from previous week, the breadth readings did not get hit that hard.  Actually, much of the breadth gains from last week’s surge were maintained.

Positives:

  1. All of the short term divergences we discussed last week were not negated with the weakness end of week.
  2. NHNL Differential finally saw some positive days over the last two weeks improving the moving averages as well and getting them closer to turning positive.
  3. Moving Average Breadth readings did not give up much ground with this week’s weakness.
  4. McClellan Summation Index is crooked down, but holding the buy signal so far.

Concerns: 

  1. McClellan Oscillator closed the week negative as a short term caution.
  2. NHNL Differential, Advance Decline Line & %>200sma all still very depressed and weighing on things until they start seeing some improvement.

With all of the Breadth divergences still in play at the moment, the only real worry I have on this level right now is the McClellan Oscillator pushing negative, but that can be changed quickly.  We just don’t want to see it continue down as that would shift the Summation Index back negative which would not be a good sign at these indicator levels.

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 Line12-31-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth12-31-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts12-31-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust12-31-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential12-31-2015 BSec NHNL Dif Dashboard

The only 3 things I will point out here this week are:

  1. All of McClellan Summation Indicators ended the week still on buy signals.
  2. Most of the NHNL differentials look to be improving.
  3. The Energy Breadth Thrust Indicator ended the week pointing higher with the McClellan Oscillator ending above zero 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:  December was very disappointing I must admit, but I want to see if we get anyone buying as we start the new year before moving into the bear camp here and am likely to give it the first couple weeks to decide.  Breadth is not deteriorating more here and actually seeing some improvement along with much of the Macro relative strength gauges.  It is subtle, but that is what I see right now and will give the new year a chance for a fresh start, but don’t expect too much of a leash if the subtle progress under the hood doesn’t continue.

Happy New Year!

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.


  • -

December 27, 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.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings12-24-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings12-24-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

The Santa Rally seems to have different parameters depending on who you talk to and who is backtesting, but suffice to say, various seasonal tendencies line up to favor equities going into the end of the year.  At the end of last week, it wasn’t looking so good for those tendencies, but I suggested we not give up yet.  Markets were sitting on the edge, but once again were able to stabilize and back away from trouble for now.  Major indexes stabilized Monday and climbed most of the week on the low volume trade.  This moved most Equity proxies back up the intermarket, however $IWM remained in the bottom half only moving up one spot.  The Size & Style this week sits in an unfavorable structure going from large to small.   Strong trends often have a small to large and growth to value setup which is almost opposite of what we see here.  With Small Cap seasonality the strongest into mid January, I would expect this to be improving, but nothing here yet.  Markets bounced back with strong weekly moves, forging Morning Star like patterns, but didn’t really change much in the macro structure which remains mixed.  Going into the last week, seasonality stays strong and many big players will not be involved increasing the likelihood for continuation of these reversals which is likely to put most of the markets right back in the middle of the ranges with $QQQ having the best chance to challenge the highs before ringing in the new 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 Rankings12-24-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings12-24-2015 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 Rankings12-24-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings12-24-2015 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

Sectors all jumped on board this week’s train and moved higher with the Defensive sectors still at the top of the RS lists, but not atop the performance for the week.  It was what many would call a garbage week.  Sectors and names that performed poorly this year like Energy (especially Solars & MLPs), Basic Materials and Industrials led the week.  All the sector returns were over 1% except Real Estate which took a break this week.

Technology also had a decent week when you strip out the largest players.  You can see this by comparing the Sector RS lists above where you can see $VGT has fallen down the cap weighted list to the 4th spot while $RYT holds 2nd on the Equal Weight RS List.  $AAPL and some of the FANG stocks that have performed so well this year didn’t really participate much putting a damper on the large cap tech world for the week.  The comparisons are good to do once in awhile to see if there are internal sector opportunities to explore.  With ETFs like $RYT & $PSCT, you can compare and contrast to $VGT $XLK $IYW; it can help you decide if you want to be favoring large versus small cap names.  The best way I know to compare these is with relative comparative (ratio) charts.  You can even do this to some extent on the subsector levels with Ishares industry ETFs since most of them are equal weighted.  So, for example, using Semiconductors comparing $SMH versus $XSD in a ratio tells us if investors are favoring the entire space or leaning more toward the large names.  For many, this is getting too deep into a sector, but the more you concentrate on sectors, knowing these shifts and other industry nuances is worth a little attention.

This week may just turn out to be a holiday trade, but I have found there are some sneaky turns hidden in those low volume drifts.  Many of the worst sectors had big weeks, some with catalysts, some just out of selling exhaustion, but whatever reason, they were marked up and in some cases buyers were aggressive.  Take the Holidays into account, but trust the action and the charts more as we saw some relentless buying at a few junctures this week.  Major Indexes could remain slow if the mega cap players take the rest of the year off, but that doesn’t mean there can’t be good movement in the broader markets and especially specific sectors when they get started moving.  If that is the scenario that plays out, this would be where those equal weighted and small cap ETFs come in handy.  

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 Differential12-24-2015 Universe NHNL

The Advance Decline Line12-24-2015 Universe AdvDecLine

The McClellan Indicators12-24-2015 Universe McClellan

The Moving Average Breadth12-24-2015 Universe MA Breadth

Breadth Thrust Indicator12-24-2015 Universe BreadthThrust

Percent Days12-24-2015 Universe Percent Days

We got the price reversals right off the bat that forged the short term divergences all over the charts which played out again.  This keeps the major washout theme in play; if correct should see the markets climb out from this low.  Let’s see what stands out this week:

Positives:

  1. McClellan Oscillator & Breadth Thrust Indicator cleared recent downtrends in the indicator peaks for potential initiation thrust.
  2. The 80% up day on Wednesday as up-down volume was very strong open to close.
  3. Moving Average Breadth all readings made new highs with/ahead of price.
  4. Advance Decline line appears to be leading price on a short term basis out of these lows.
  5. McClellan Summation Index crossed up below zero for buy signal.

Concerns: 

  1. NHNL Differential is still negative and the biggest longer term warning flag.
  2. NHNL Differential, Advance Decline Line & %>200sma all still very depressed and weighing on things until they start seeing some improvement.

I am happy I mentioned the potential divergences early as they played out well and set the markets up to continue the progression.  This week we moved out of short term extremes to intermediate improvement with the Summation Index signal.   Now we need the %>50sma and then the longer term measures to get in the game if we are going to see a sustained move higher from here.  One step at a time.

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 Line12-24-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth12-24-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts12-24-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust12-24-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential12-24-2015 BSec NHNL Dashboard

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

The breadth improvement really started two weeks ago which is what paved the way for the many divergences we saw on the “retests” and survived this week.  Looking at many of the sector Advance Decline lines, Breadth Thrust and McClellan Oscillators, you can see the higher lows much more clearly now with some making strong improvements in just two weeks.  That said, we are just now seeing most of the McClellan Summation Indexes getting ready to signal and the %>50sma readings are still pretty beat up.  Looking through the charts, there are many MAs clustering after all the sideways action we have seen over the last year, so any improvement from here is likely to start showing up big on the readings.  You know by now the Summation Index remains one of my favorite intermediate signals, and with all of them lining up to cross together, it provides the potential for a strong and broad move out of this area if they all start signaling.

After a tough start to the month, seasonality (and moving past other catalysts) looks to be creeping in on a broad scale.  Breadth is improving across the board out of the recent lows which gives a better chance for continuation higher in the short term which is likely to provide more intermediate term breadth signals if so.  So with improving breadth as a backdrop, for the intermediate investors, many sectors are moving above short term consolidations which can give well defined risk for stops and good potential for the move to continue higher; but overhead resistance and timeframe taken into account, just make sure the risk to reward potential is still tilted in your favor.

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:  I think this week took us off the ledge and set up for more improvement and even a challenge of the old highs in the coming weeks to months, even in $IWM!  This will likely take more than this week, but the price action we saw coming right when it was needed and with broad participation sets us up for the potential at least.  The short term divergences played out well and are making some waves up the breadth levels, but need at least some continuation this week to forge the intermediate signals.  It seems very possible we could get it this week.  I could not get myself to turn bearish last week since we didn’t really confirm below any important levels nor did the breadth show negative expansion.  I am happy I didn’t.  There are certain times I might be willing to play an anticipation game with short term moves, but for longer term character changes, I find it is best to let them confirm before getting too caught up in the what ifs. 

Have a great last week of 2015!

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.


  • -

December 20, 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.*

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.


  • -

December 13, 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.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings12-11-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings12-11-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

Very few safe havens this week.  It is a little ironic that other than $JJC, the only other green on the Intermarket RS list came from bonds.  $USO lost support and fell hard dragging others with it.  Large Caps bounced around most of the week near support while $IWM was weak until Friday when they all gave way quickly.  The $IWM weakness caused it to lose a good bit of RS ground this week on both lists.  The week ended with Ugly weekly candles for all the major equities.  This price action forces us to be on the defensive and puts somewhat of a damper on the Santa rally, but as we will see below, some extremes were also forged on Friday that should be watched for potential reversals.  With $IWM being the only equity not in the top half of the Intermarket list, it adds caution, but doesn’t turn it to an unfavorable stance yet.  The weakness in small caps in general puts them at the bottom of the Size & Style list once again which is not favorable for the overall markets.  Putting them together, it send us into this week skeptical of any bounces unless small caps can lead.

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 Rankings12-11-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings12-11-2015 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 Rankings12-11-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings12-11-2015 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 Rankings12-11-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings12-11-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

Nowhere to run, nowhere to hide.  That sums it up for the sector world this week too.  The cyclicals we have been favoring got hit hard pushing them down the RS ladder while defensive names moved back up.  One thing not to forget is my RS is a 3 month calculation, so it sees more movement than many other RS readings, especially when you have big moves like we saw this week.  Consumer Staples and Real Estate went out on the top of the lists on that theme and even Utilities made a big RS move higher.  Again here in the sector world, it is very interesting to see so many yield plays moving up right before the FED announcement this week.  This week the defensive theme came back in vogue like we saw during the summer months, so we will continue to monitor and see if it was a change in character that can persist this time.  It is very hard to find any green on the week which turns us to concentrating on changes in RS readings and where they might be going.  There was definitely some jockeying going on during this action, but it is interesting to me how many Technology ETFs are still in the Top 30 list even with it being one of the worst hit sectors this week.  Sharp selloffs in leading sectors are not always the start of something bigger, but when the selling is as broad as it was this week, we do need to take more caution and somewhat of a wait and see attitude.  There really was no place to hide looking at the sectors and we ended on the lows, so I don’t see any sector jumping out based on this telling us to rush in and buy.  Instead, we see if they can get reversals off the breadth extremes this week (will discuss that next) and if there is any strength behind them.  It is a combination of the breadth and RS action that I like to use for guidance, but right here my focus leans more to the breadth side for more specific action ideas while monitoring the RS reactions this week. 

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 Differential12-11-2015 Universe NHNL

The Advance Decline Line12-11-2015 Universe AdvDecLine

The McClellan Indicators12-11-2015 Universe McClellan

The Moving Average Breadth12-11-2015 Universe MA Breadth

Breadth Thrust Indicator12-11-2015 Universe BreadthThrust

Percent Days12-11-2015 Universe Percent Days

This is where it is the ugliest in my view.  After saying last week things were holding up okay, this week breadth rolled over pretty hard.

Positives:

  1. McClellan Oscillator & Breadth Thrust Indicator close the week at extremes.
  2. Friday registered a 90% down day which usually leads to a bounce in 1-3 days.

Concerns: 

  1. NHNL Differential took a big hit this week with new highs all but disappearing.
  2. Advance Decline continues to weaken and made minor lower low this week.
  3. McClellan Summation is rolling over and challenging -500 now which is our line in the sand.
  4. Moving Average Breadth have all fallen back into the bottom quadrant, but are not deep enough to get excited about them, so still on the concern list for now.

Man, what a difference a week can make.  Last week the small cap lag was noted, but not having big effects yet, but this week small caps led a broad decline that hit most everything.  The negatives here are growing and worrisome from the longer term perspective, but the short term extremes here in breadth and in other sentiment measures are suggesting a bounce soon, probably this week, but it better come with some serious muscle if it is to improve the intermediate and longer term measures.   The progression we saw off the fall lows got clipped this week so we are back to square one.  Short term extremes need to play out and build from there to get things back on track.

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 Line12-11-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth12-11-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts12-11-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust12-11-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential12-11-2015 BSec NHNL Dashboard

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

As mentioned above, most everything got hit this week and it shows in the sector breakdown.  Actually, almost everything.  Precious Metals Advance Decline line slightly rose this week even though the subsector was not positive.  That really isn’t a lot to hang your hat on.  The selling was broad and deep, but started to feel like a bit of panic on Friday as the day progressed.

It looks like Financials actually took the biggest hit from a price and participation standpoint; starting and ending the week with 90% down days which matter in a sector with this many components.  Friday was actually a 96% down day.  Whoa!  The Summation Index is testing the flatline here and only 6.2% of the components are above their 20sma and only 15.88% are above the 50sma to end the week.  Another interesting turn of events with Financials being seen as the beneficiary of any rate hike.  Nothing this week played along with the rate hike rhetoric, so it will be very interesting to see what Yellen does.  On the positive side though, we must mention again the heavy 90% down day along with Breadth Thrust and McClellan Oscillator extremes which have both only seen lower readings once since 2012 which was the August flash crash day.  These types of extremes have all been at or near prominent lows.  There always can be a divergence or retest, but many I see on my charts going back to 2012 have been more of the V variety with sharp moves starting fairly quickly.  This time may be different and it always feels that way in the heat of the selloff, but I think it is worth giving them the room to bounce and prove it one way or the other.  If, by chance, Financials do reverse hard from here, it should bode well for broad markets and $IWM especially as it carries a 25.77% weighting in Financials.  That is still a big IF at this point, but we should know soon as the extremes here are pretty stark.

The short term extremes are pretty heavy across most sectors.  Using the Breadth Thrust Indicator as our measure, we currently see extremes in the Broad Universe as a whole, 9 of 10 sectors (Health Care sits at .4012, being the only one not below the .4 extreme line), and 42 of the 49 subsectors I track.  That is not likely to last very long.

Sectors are back to breadth extremes that produce bounces and with all of them there at the same time, it increases the odds of a solid move that can be more than just a bounce.  How much thrust we see off these lows whenever they do happen will be the clue to which sectors will carry forward.  RS has defensives heading back toward the top right now, but they aren’t likely to stay there long if the reversal takes hold.  Watch financials closely as they could be the key to small caps and broader participation across the board.

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 very tough and did a good bit of damage.  Not insurmountable, but troubling for a month that is usually so strong.  In last week’s final note, I suggested if we were soft much longer it could scare people out of good positions and that is exactly what I think happened this week.  The question now is how scared?  And what fears are taking the helm?  The fear of losing and a new bear market or the fear of missing out and underperforming into the end of the year?  It has been a tough year for markets with very few broad trends supporting them, but outside of commodities the bears just haven’t had enough strength to persist.

These short term extremes put us back at the starting line of the breadth progression; so we reset and see how it pans out, but we need follow through participation by buyers sooner than later as we might find a trap door if we keep bouncing along the bottom when it comes to participation which would cause more serious problems for equities.  Short term players, this is your spot to pay close attention and take advantage of these extremes; but the longer your horizon goes out, the more tepid I would be with making new commitments until we see more proof buyers can take back control.  Dipping your toe in the water is fine, but be nimble and commit new funds only as positive evidence mounts.  If it does, Santa might still come see us after all.

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.


  • -

December 6, 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.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings12-4-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings12-4-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

Well, if you were away from the markets this week and are just catching up, nothing much happened; but as usual you missed a lot of action and maybe even a few important messages from the markets.  That is one of the debates that rages between some longer term investors and short term traders.  While it is true the longer term investor does not have to hang on every nuance and can take a higher view of things, there is a lot to learn from many of those nuances even if you are not trading them.  That is why true professionals are always studying the markets and doing their homework no matter how many trades come out of it.

This was the second weekly doji for the $SPY in a row.  This week’s candle had longer wicks as the volatility increased, just not the end result.  Buyers continue to fight the good battle keeping the bears at bay for now, but the markets need to move over these levels or we are likely to see the bears a little more emboldened.  That said, the structure of the Intermarket RS list is still favoring equities and this week’s drop in the $UUP RS helps improve it by putting all the Equity proxies at the top.   The Size and Style list is not playing along though.  I do like that Small Caps are starting to move up, but it is more due to Mid Caps underperforming than it is due to small caps really flying.  We are entering the seasonal sweet spot for small caps so we won’t rule them out yet.  The intraweek news driven volatility has us on watch because the selling was real, but Friday’s erasing of the fast drop sent a message that it’s too early to throw in the towel on this move and the potential for a Santa Rally.  With the Intermarket RS list supporting the move, we would like to see the Size and Style list shape up some.

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 Rankings12-4-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings12-4-2015 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 Rankings12-4-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings12-4-2015 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 Rankings12-4-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings12-4-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

The sector world did not impress me that much this week.  We didn’t have any that really stand out as different than what we have been seeing.  Looking just above, you can see most of the Top 30 ETFs had pretty solid weeks and most of the bottom 30 remained losers.

The only two things that stand out for relative strength changes are Consumer Discretionary, which continues to move down losing 20 more points this week on most of my sector lists now putting them near the bottom, and Real Estate moving up on most lists which is not what many would be expecting if rates are about to rise.  This rise in RS brings us to take a closer look at the chart and IYR might not be there yet, but it has put in a nice base that looks to be forming an inverse head and shoulders pattern with an ugly shoulder trying to morph into a triangle pattern.  The pattern has to prove itself, but if it does it will target a better than 10% move higher.

A few subsectors like Precious Metals and Credit Services RS jumped while Construction Materials and Transportation dove, but that is not a lot of shuffling in a group of 49.  Overall, sectors saw some jockeying but did not see a lot of change in character from week to week, but neither did the markets.  If anything, the back and forth looks to be setting up nice consolidation patterns in the majority of sectors (especially all the heavy weights) that are usually healthy and if broken can lead to a nice move.  They can, of course, break in either direction, but often it is in the direction of the previous move.  

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 Differential12-4-2015 Universe NHNL

The Advance Decline Line12-4-2015 Universe AdvDecLine

The McClellan Indicators12-4-2015 Universe McClellan

The Moving Average Breadth12-4-2015 Universe MA Breadth

Breadth Thrust Indicator12-4-2015 Universe BreadthThrust

Percent Days12-4-2015 Universe Percent Days

Things still look okay, but it was another unimpressive week for breadth.

Positives:

  1. Moving Average Breadth all held decently during the intraweek raid.
  2. McClellan Summation Index crooked, but didn’t fall much during week and remained positive and above the signal line.

Concerns: 

  1. NHNL Differential was negative all week and the Moving averages are turning back down without going positive.
  2. Advance Decline Line and Price made a new high for the move but then fell right back.

The absence of any Small Cap strength showed in the breadth picture, but didn’t do much damage yet.  Not much to lean on right here by the bulls or bears, except that slow deterioration that drags out definitely favors the bears.  However, if we get follow through from Friday’s move and small caps join in, these measures could see swift improvement continuing the trend off the fall lows.

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 Line12-4-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth12-4-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts12-4-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust12-4-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential12-4-2015 BSec NHNL Dashboard

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

Sector world continues to bump along on an upward path in many sectors except the Commodity based like Basic Materials and Energy which haven’t improved much, if any.  The rally needs to remain broad and pull the small caps more into the mix for us to see improvement.  Most still look to be holding up during the challenges we have been seeing.  I am watching for which sectors start to move out and act differently as we break away from the current consolidations so many sectors are currently in.  Not much to read into week over week.  New highs are not inspiring, but nothing looks dangerous right here on the downside really either.

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 didn’t add or subtract much from my overall view.  There was some breadth deterioration, but the ending strength we saw in the face of difficult news 3 days in a row needs to be noted. There is definitely a battle going on here, but buyers continue to step up when needed, and they were needed Friday.  The only rub here is we can’t seem to move over the recent highs.  The bulls need to see this soon or we could flounder through Christmas.  That wouldn’t totally rule out Santa as we still have the last week, but it could spook a few out of good positions along the way.

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.


  • -

November 29, 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.*

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.


  • -

November 22, 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.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings11-20-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings11-20-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

Markets bounced hard this week allowing Large Caps to erase all of last week’s losses instead of providing follow through to the downside.  Large names continued to get most of the attention, but Small Caps put in a respectable week as well.  The real laggards as we see in the Size & Style RS Lists were the Mid Caps.  The confluence of support, sentiment and seasonality kept the markets afloat and keeps the focus on the all time highs for the big boys.  From here though, the seasonality begins to favor the small caps into early January, so we are likely to see some catch up runs, but the real question is, can Small Caps get back to their all time highs?  Those odds are not as good in the near term, but still possible.  The current market action does favor testing highs soon in $SPY & QQQ and if they can clear their highs, then I think the next thing we look out for is where $IWM tops out.  If $IWM can get close to its June high, but NOT break them, such a non-confirmation clue could usher in some selling in the first quarter of 2016.  For now though, the structure of the Intermarket RS List continues to improve favoring equities over other asset classes.  The Size & Style List is pointing to large growth as the standout, but the rest of the list is grouped by size with style making little difference at the moment.  This doesn’t provide much support or direction from this list other than large caps are the winners here.  If that continues (which it can for a while), it will be another clue we are in the upper innings of the recent bull market, but let’s wait until the small cap seasonality plays out to make any big judgments here.

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 Rankings11-20-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings11-20-2015 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 Rankings11-20-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings11-20-2015 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

The rebound off last week’s selloff was nice and broad helping lift all boats, but you can definitely see there were a few spaces that got more play than others.  Technology continued to lead, but Industrials and Consumer Discretionary both got plenty of attention too.  Technology has been improving and looks to be a new leader here, while the other two are just resuming their positions.  Technology has been a clear leader along with Consumer Discretionary before the recent Retail company raid by investors.  This week that selloff reversed at support and may try to provide some support from here now with earnings season over and retail’s biggest season at our doorstep.  Sure, the argument that online is killing traditional retail has some long term legs, but I doubt it persists too strongly in the next month or so, especially once the Holiday spirit gets in the air.  The US consumer is still alive and well and they will spend into year end.  My stance has not changed in weeks.  I still think we see strength into the end of the year with cyclical and growth plays leading the way.  I mentioned to look for new leaders like Industrials and Financials, but did not preclude old leaders like Technology and Consumer Discretionary from staying near the top.  We are even seeing Health Care and Biotech especially setting up for a potential breakout here which would be a big help.  Look at the sectors listed here; they make up over 75% of the market cap of the $SPY!

11-22-2015 10-12-13 AM SPY breakdown

If these sectors continue to lead us, then the major indexes will come along willingly with this type of weight.  You couldn’t ask for a better set of relative leaders going into year end.

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 Differential11-20-2015 Universe NHNL

The Advance Decline Line11-20-2015 Universe AdvDecLine

The McClellan Indicators11-20-2015 Universe McClellan

The Moving Average Breadth11-20-2015 Universe MA Breadth

Breadth Thrust Indicator11-20-2015 Universe BreadthThrust

Percent Days11-20-2015 Universe Percent Days

After last week’s shake up we saw some reversals this week working with the short term indicator setups.  Now let’s see where it left us?

Positives:

  1. Moving Average breadth reacted well to this week seeing a strong rebound in %>200sma which is needed here.
  2. Advance Decline line and Price both showing higher highs and higher lows.  Another higher high seals the deal.
  3. 80% Down day (almost 90% but no dice) previous week worked as usual showing interest.
  4. McClellan Summation Index is slowly turning as it holds above -500 for now.
  5. McClellan Oscillator & Breadth Thrust Indicator both surged well off the extreme touches and Oscillator is cleared zero at close of the week.

Concerns: 

  1. NHNL Differential already back into sell signals for all 3 factors.  That was quick, but not deep.  Still a bigger concern.
  2. McClellan Summation Index is negative, but see above.

The rebound this week was just what the doctor ordered and it did a good job improving a large swath of the breadth indicators we watch.  The long term picture remains mixed with the NHNL giving an ominous sell signal while %>200sma and Advance Decline Line are both reacting as good as we could expect this week.  The Advance Decline Line made a higher low and the %>200sma reacted stronger than it has in recent rallies.  These are good signs that we are still on course and improving off the Aug-Sep washout readings.

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 Line11-20-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth11-20-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts11-20-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust11-20-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential11-20-2015 BSec NHNL Dashboard

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

The first thing to note about the sector breadth tables above is they are all zoomed in more than in previous weeks.  While looking at the larger data sets does have some value when dealing with breadth, I think we may have been missing too much of the nuance in some of the measures.  This shows up the most when clicking through to the Advance Decline line page for Subsectors, but you are likely to notice it in the other readings as well.

We are getting good reactions off the short term indicator extremes mentioned last week.  That is about the best you can expect from breadth for timely buy signals.  Do they all work?  Of course not.  Do we know how far they will go?  No, but the Percent Days, %>20sma, McClellan Oscillator and Breadth Thrust Indicators all reacting over a few day window is a pretty good start.

I have made it clear I favor cyclicals here, but also last week suggested that if Utilities wanted to bounce, it would be soon based on these breadth indicators and it did.  One Utilities breadth indicator I specifically called your attention to was the %>20sma with just 7% of the components above the moving average, it seemed ripe.  That indicator closed this week over 44%.  We also saw a similar move this week in Real Estate as interest rate fears began to be digested.  That bounce is happening now, but I don’t want to make any bets on how far it will go.  Short term indicators suggests a short term reaction.

Moving to a more intermediate view, we look at the McClellan Summation indexes that rolled over two weeks ago are already curling back up with many above the flatline.  All of the leaders above have a Summation index that has moved strong off the September lows and are handling the current pause without too much giveback which is what we want to see.

The short term extremes did play out with a solid bounce starting right out of the gate on Monday putting the process into motion once again.  Now we look for the strength to continue and take setups in the sectors that fit our criteria.  Industrials and Financials have shown emerging leadership in the recent weeks, but many large weighted sectors are performing well and providing support to the broader markets move.  The reaction across all the breadth views here was as good as we would ask for over a one week time period and suggests more to come as the appetite for stocks into year end seems robust looking at how we reacted to last week’s selloff.

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:  We got the sharp drop, a little excessive bearish noise and just as sharp a rebound for much of the markets.  Not much more the bulls could ask for this week.  Sure, the small cap lag is still a concern, but that can change quickly and, until it does, you can lean larger.  If this is a late stage move in this bull market, the larger names will probably outperform in the entirety of this last leg, but the small cap seasonality just starting in recent days can quickly change that.  Be careful making that portfolio adjustment right here if you haven’t already been positioned that way.  We are entering a slower holiday week which will definitely decrease volume and often provides a drift higher.  I wouldn’t chase as any big moves can be accentuated by the low volume.  We do want to be watching closely what sectors get the most love and which ones are shunned to see if it continues to play into our cyclical and growth theme going forward.

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.


  • -

November 15, 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.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings11-13-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings11-13-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

We got the swift pullback we discussed last week and now we will see where it takes us.  It is too early to tell if it will end soon or not, but there are many different technical confluences out there that could provide support in the short term.  From there, we read the action during the bounce to gauge participation and potential.  For now, the Intermarket RS list is one of the areas that looks potentially supportive.  It took until last week for us to get all of the Equity Indexes back in the top half of the list as we prefer, so weakness this week could very easily have reversed that.  But, it didn’t.  $IWM held just above the midpoint of the list keeping the list structure favorable by a hair.  Actually, $IWM also outperformed on the big drop we saw Friday which is worth noting.  The Size & Style (which I will probably change in the next couple of weeks) is still a mess and doesn’t seem to be clearing  up at all yet.  The Macro relative strength view from these two lists is still tentative at best with the Intermarket view improving in recent weeks, but the segments are not lining up to give an all clear signal.  I view the Intermarket list as the more important of the two, but need to see the Size & Style play some catch up very soon off this pullback.

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 Rankings11-13-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings11-13-2015 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 Rankings11-13-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings11-13-2015 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 Rankings11-13-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings11-13-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

Many leading sectors took hits this week with the broad selloff in the markets.  The only dot of green we saw for the week was in the Utility sector; relatively, it was a strong out-performance on the week as it was the only sector to lose less than 2% on the week, but not enough to register anywhere in the relative strength readings.  However, it does suggest the rate hike fears of last week might have shot out of the gate a little fast, but we will stay tuned there.

This is the sharp pullback I mentioned last week, but whether it will be short or not is now the question.  It spanned most of this week and accelerated into the weekend and, with the terrorist attacks Friday afternoon, has a good chance of getting some continuation on Monday.  We will see below that the short term readings are stretched to the downside here and support the chances of a bounce early week.  Right now is where we need to be watching sectors closely and seeing where strength and leadership begin to appear.  Those will be the sectors that are most likely to perform into the next leg higher.  At this moment, I still favor the cyclical sectors like Technology, Industrials and Financials, but Consumer Discretionary had a rough week with the Retail route.  A quick snapback in Consumer Discretionary would bode well, but there is no evidence there yet.  Again, even Health Care would go in this group as it is not as defensive as it used to be and has been showing relative strength in recent weeks.  I want to see relative and absolute strength off the lows of this pullback before deciding where to add exposure which is why now is the time to make your list.  The pullback is playing out now, but so far I don’t think we see a major top right here.  My list is still leaning to the cyclical side at this point, but the action into Thanksgiving will be the deciding factor.  I hope to get positioned before then, but no rush if the indexes don’t find support and reverse early week.

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 Differential11-13-2015 Universe NHNL

The Advance Decline Line11-13-2015 Universe AdvDecLine

The McClellan Indicators11-13-2015 Universe McClellan

The Moving Average Breadth11-13-2015 Universe MA Breadth

Breadth Thrust Indicator11-13-2015 Universe BreadthThrust

Percent Days11-13-2015 Universe Percent Days

The universe rolled over some ushering in a sharp pullback on the week.  This shook up the breadth picture as most measures took a hit this week.

Positives:

  1. McClellan Oscillator & Breadth Thrust both make b-lines to extremes.
  2. 80% Down day (almost 90% but no dice) on Thursday suggest a bounce within 1-3 days.

Concerns: 

  1. NHNL Differential failed this week after finally resetting last week.  We closed the week with negative readings in both the NHNL and 10sma.
  2. Advance Decline Line dove hard after making a higher high, now need a higher low.
  3. Moving Average Breadth saw the %>200sma move back just below 30% and none moved into top quadrant on the recent rally.
  4. McClellan Summation Index is rolling over and turned negative.  -500 is about as low as bulls want to see it go; below that likely has bigger implications.

We got the breadth raid sending the short term indicators into extremes that often produce bounces.  The rub here is the long term weakened a little more than we like to see.  This puts markets in a tough spot.  The long term breadth did not expand as much as you would like to see before this pullback and is now weakening with the short term measures.  The tree is definitely being shaken here, but if we get some decent participation and shoring up in those longer term indicators during any bounce, the markets are still in the game for an end of year run.  While optimistic buyers have been showing up when they needed to and could continue, we need to see the longer term readings respond better to any moves higher from here.  If they don’t, it definitely gives more reason to worry going into 2016.

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 Line11-13-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth11-13-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts11-13-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust11-13-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential11-13-2015 BSec NHNL Dashboard

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

Sector breadth took its lumps with the broad markets this week.  All sectors took breadth hits across all the levels.  9 of 10 major sectors (and 35 of 49 subsectors) have Breadth Thrust readings in the extreme zones to end the week.  This much alignment shows there was not that much discrimination in the selling, but it also suggests a broad bounce is likely some time in the coming week.  It doesn’t tell us anything about where that bounce may go.

We are still falling, so you want to see some positive movement before getting too active.  While waiting we must gauge the action of the sectors and subsectors to see who is getting the attention under the surface.  My favorite snapshot of all three time frames is the Moving Average Breadth charts which show short intermediate and long term readings all in one place.  The moving average breadth shows only Technology and Financials still have over 50% of components over the 50sma while all the rest of the sectors are below that line.  From a short term view, Utilities only have 7% of components above the 20sma while those above the 50sma are still around 40%.  If Utilities can turn up from here as they hinted this week, the sector would get a nice breadth buy signal.  Health Care has the highest number of stocks above the 20sma of any sector after taking such a beating in recent months.  If Health Care breadth can continue to improve with accompanied relative strength, it could be signaling the long term trend is ready to kick back in gear.

The next chart to go to is the McClellan Dashboard so we can hone in on the Intermediate and short term time frames from another angle.  The Summation is the best intermediate breadth indicator I use and when comparing them I like to see direction and relative positioning above or below zero.  It still looks like many sectors made significant bottoms in August or September which we ran hard off of.  Now we watch and can gauge participation as they get tested for the first time.

All in this section I suggested what could happen and what might materialize, but we closed near the lows on Friday and are likely to see some opening weakness on Monday.  If these extremes are going to play out, it will be soon and the magnitude of the move off the lows should tell us a lot about our next direction and who is likely to lead.  This is a process, so let it play out and do your best to listen closely along the way.

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:  We are in the midst of the sharp drop that still might be fast if it stops early this week or could drag out into Thanksgiving.  The stress on the markets did increased this week with the selloff and potential bearish technical patterns that are developing.  If we continue to weaken, it could start to trigger more longer term sell signals that must be considered more carefully in light of the market action over the last 4 months or so.  That is the worst case scenario, but for now I am still optimistic we are digesting the recent run off the washout lows and the potential to continue higher into year end is alive and well.  The failed breakout of $QQQ has many getting overly bearish very quickly as most short term indicators (breadth, sentiment, put/call, etc) are hitting solid extremes to end the week.  I think the potential for a strong snapback sometime during this week is likely barring any more large catalysts.  If the snapback does occur, strong sectors might not give a lot of time to get on board even if the broader markets continue to move sideways for a few weeks if they get stuck in the summer ranges. You want to be ready for opportunities in sectors when they happen.  Don’t necessarily wait until the broad market breaks out if you have a clean sector move triggering as that might be showing you one of the leaders into year end, especially if its relative strength and breadth are aligning with the move.  

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.


  • -

November 8, 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.*

Previous reports can be read here.

Macro Relative Strength

Intermarket ETF RS Rankings11-6-2015 Intermarket RS

Intermarket ETF on FINVIZ

Equity Size & Style RS Rankings11-6-2015 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

A week of catch up for the Small Caps.  $IWM made a big jump on the Intermarket RS list bringing all the equity components back in the top half of the list moving it back in a favorable structure for the equity markets.  This may seem late to short term traders, but from an intermediate view, it is a positive macro data point.  $GLD & $SLV went the other direction as the fear trade subsides and the strength in the $UUP reassessed itself.  These are not a good combination for metals or most commodities for that matter.  This is a concern as the recent $USO rally comes into question as well.  The Size & Style RS list is still a bit of a mess.  Large Growth continues to lead, but after that there isn’t much discernible structure right now.  A strong leg higher should see more improvement in the growth segments and even lean to the smaller names as opposed to the Large and Mega Caps.  Overall, the structure of the Intermarket RS list has moved back into a positive structure, but the Size & Style list is still waffling a bit.   This is not a big warning, but something to keep an eye on as we move forward.  I still believe some rest is in order, but as always we need to be open to rotation instead.

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 Rankings11-6-2015 Broad Sector CI Relative Strength

Subsector Custom Index RS Rankings11-6-2015 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 Rankings11-6-2015 Sector Proxy ETF RS Rankings

Equal Weight Sector ETF RS Rankings11-6-2015 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 Rankings11-6-2015 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings11-6-2015 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

More cyclical plays through most of the week which became accentuated on Friday with the big NFP.  It wasn’t that the cyclical sectors ran that hard higher, but the under-performance from the defensive names was pretty stark.  Friday saw all the dividend leaning sectors take bigger hits in both price and relative strength.  The coming week will either continue those hits or settle a little which should tell how big the interest rate fear really is.   Friday definitely raised the chances of a small increase in December, but I still don’t think that changes much in the longer view that rates will stay low for a long time.  Whether that is correct or not doesn’t really matter, what matters is how investors will react between now and the meeting. Financials, Energy and Technology performed the best on the week with Real Estate, Consumer Staples, Utilities and the Pipeline segment of Energy taking the biggest hits (now, if we were including Subsectors, Precious Metals would be up near the top).  This might even suggest there is not really a big fear of the rate hike.  The only sectors really getting punished are those directly affected by the hike and other fear trades like Precious Metals.  Overall, that is pretty much how bulls should want things to stay.

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 Differential11-6-2015 Universe NHNL

The Advance Decline Line11-6-2015 Universe AdvDecLine

The McClellan Indicators11-6-2015 Universe McClellan

The Moving Average Breadth11-6-2015 Universe MA Breadth

Breadth Thrust Indicator11-6-2015 Universe BreadthThrust

Percent Days11-6-2015 Universe Percent Days

Strange week when looking at the breadth world.  It made some headway early on with the Small Cap breakout, but petered out a bit toward the end of the week which is when the excitement seemed to grow.  No short term pullback this week, but still has a feel we could see one anytime.  However, the opposite would be to continue to grind higher while working off any froth.  This second scenario is the hardest to work with for most investors.  Let’s see what stuck out this week.

Positives:

  1. NHNL Differential remained steady and surged Friday which is finally turning up the 30sma.
  2. Price action in the custom index moved well this week with Advance Decline Line making new highs for the move.
  3. McClellan Summation avoided rolling over and now getting distance from the flatline.
  4. Monday was an 80% up day as the Small Cap index $IWM broke out.
  5. McClellan Oscillator & Breadth Thrust both avoided breakdowns after the recent weakness.

Concerns: 

  1. Moving Average Breadth had %>20sma did not see a big reaction on the week and %>50sma turned back at 70%.
  2. Although the breadth picture has been improving weekly, the long term measures are still at somewhat depressed levels making them susceptible to further weakness.

This week was positive overall, but I still believe some volatility in both directions is in our future.  The breadth picture is improved, but still somewhat vulnerable to a short term raid.  This doesn’t mean all is lost if it happens, just that a good shake of the tree now that many are moving back positive might be in order before going into the Santa Rally.  I don’t want to even begin to try and say when it will start because I thought we were due already, but the markets had different ideas, so we go with those.  Any retracement we see needs to have minimal affect on the long term measures if the end of year picture is to remain bright.

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 Line11-6-2015 BSec AdvDec Line Dashboard

Broad Sector Moving Average Breadth11-6-2015 BSec MA Breadth Dashboard

Broad Sector McClellan Charts11-6-2015 BSec McClellan Dashboard

Broad Sector Breadth Thrust11-6-2015 BSec Breadth Thrust Dashboard

The New High – New Low Differential11-6-2015 BSec NHNL Dashboard

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

The broad participation to the upside came to a somewhat abrupt, but not totally unexpected end this week as we discussed above.  It showed in the sector breadth pretty heavily as well.  The defensive sector breadth rolled over while the cyclical plays remained strong.  One good place to spot this change is in the McClellan Summation Indexes where you can clearly see the Consumer Staples, Real Estate, Utilities and Basic Materials rolling over. The good part is that outside the Consumer Staples sector, the rest are very small when it comes to market weights so their effect on any potential move higher will be muted if the rest of the heavier weighted sectors remains strong.

This week’s standout is probably Financials as they finally really got on board with the move higher.  Actually, the Financial NHNL spiked to 51 on Friday which is the highest we have seen it since the summer.  Although not a leader, it was also nice to see Health Care continue to rebound off the lows and not rolling back over.  Health Care might continue to play an offensive role in rallies for a while due to the many changes that sector is going through.  Historically, Health Care was a defensive sector, but I argue that changed this decade with so much innovation in the field.

Overall, the sector world continues to point higher and give many different opportunities to different trading styles here, but the clear message is cyclical is back in vogue for now and where the money is flowing while defensive sectors are last summer’s news.  Plan accordingly until the message changes.

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:  Last week was expecting more giveback, but left open the door to a continued grind higher which is what we saw after Small Caps broke out early in the week.  We saw that grind higher and now markets are dancing around the old highs.  If we get a pullback from here, it could be the fast and sharp variety I spoke of as many see it as a failed breakout.  I would have my list ready and jump on opportunities that appear in that scenario as I don’t think they will stay around too long.  If this scenario plays out, my list will be made of of the sectors that hold up the best and come out first as they have the best chance of being our leaders going forward.  This move has been strong and persistent, but some patience is needed here to get the right entries in my view.

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.


My Ideas on StockTwits

Archives

Categories