April 4, 2015 Strength In Numbers
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For more background on this report, the Strength In Numbers powerpoint further explains what I am building here. Previous reports can be read here.
Macro Relative Strength
Another week we see dissension in the ranks with $IWM taking the number two spot while the rest of equities are falling in the bottom half of the Intermarket RS list. Well, $QQQ is exactly in the middle spot, but even so, this list is still flying a caution (not bearish) flag which pushes us down to the Equity Size & Style list to get more information on the space. However, before we do, we should take a quick note that the $UUP is starting to give some ground which could provide some potential relief if it continues. A large portion of this relief could come in the depressed commodity space, so keep a close watch there. $TLT is still hanging up there as interest rates continue to settle down from the recent $FED rate hike episode, but that doesn’t bother me as much. I continue to think they will hold rates lower longer, especially in this domestic and global environment, but many believe/believed it would be sooner. After Friday’s Jobs report, I am more confident they won’t be rushing things. Even if they do put through a symbolic rate hike to calm the critics, lower longer is the most likely path I think.
Jumping down to the Equity Size & Style RS list, we can see that the structure here is still tilted greatly to Small and Mid Caps with all segments leaning to the growth side of things. This is a positive structure and continues to calm some of the structural issues we see in the Intermarket RS list. With $IWM doing it’s best to pull the others higher, I would keep it on top as the directional leader for now both on the daily and intraday charts. Until that changes, I think you continue to look for strength out of this consolidation. It could take a little more time or even deteriorate to a point that scenario changes, but no evidence of that yet. I will also be watching the $UUP and commodity relationship as another spot for opportunities this week.
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.
Next, I look at a Broad Sector ETF Proxy which I use Vanguard ETFs to make sure things are similar and for some trade-able ideas. Below that is the Equal Weighted version for comparison.
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 Rankings
Top 30 Sector ETF RS Rankings on FINVIZ
Bottom 30 Sector ETF RS Rankings
Bottom 30 Sector ETF RS Rankings on FINVIZ
Health Care and Technology continued to weigh on things this week, but there was a lot of green in most of the remaining sectors. Energy and Utilities had the strongest week with Financials just behind. Consumers were solid and Materials put in some gains. Industrials were meh, and have been for a while. The Energy space is one area I have been pointing out the changes for most of the year. The fact the Energy stocks did not make new lows while $USO did in the first quarter is a big deal in my opinion. Now as we start the second quarter, some decent bases have been built and many leading names are beginning to break out. If the $UUP continues to pull back, it will just add fuel to the mean reversion here. Even looking at the Top 30 sector ETF list above, it is becoming more infiltrated with Energy plays, but Technology and Health Care continue to have a strong presence as well, so if strength does resume soon, don’t expect those to get left behind. We are certainly likely to see more rotation while the markets remain choppy, which should show in these numbers as we move forward. Energy is making the most headway right now while Industrials are losing the most ground, but there are plenty of other fishing lanes in between that continue to set up during these pauses we have been seeing. In this flat year so far, the only way to make money has been to remain tactical and opportunistic, so stay nimble.
Broad Market Breadth
Universe of 3,070+ stocks from 10 custom broad sectors and 49 subsectors. Universe contains only stocks (that are both optionable and shortable) with no Preferred stocks, CEFs, ETFs, or UITs to skew the breadth measurements. There is a breakdown of the universe in the powerpoint presentation link at the top.
The New High-New Low Differential
The Advance Decline Line
The McClellan Indicators
The Moving Average Breadth
Breadth Thrust Indicator
Percent Days
There was no downside follow through after last week’s market hit in price or in the breadth as we see above. The positives still outweigh the negatives in my view and actually improved this week.
Positives:
1. NHNL popped back into positive territory and remained there all week showing resilience.
2. MA Breadth measures all coiling above 50%.
3. McClellan Summation Index is continuing to hug the flatline, but ended the week curling up as the Oscillator ended above zero as well.
4. Breadth Thrust Indicator still wants higher it seems.
5. Price remains above the neckline after a breakout back test and now forming a triangle consolidation.
Concerns:
1. Advance Decline Line can’t seem to move away from this area.
2. Everything is coiling which forces us to be more open to either direction even with the weight of the evidence above.
Overall, it was actually a pretty quiet shortened week where things under the hood improved slightly along the way.
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. For this section, I have posted the Breadth Dashboards for the indicators I use.
Broad Sector Advance Decline Line
Clicking on this section will go to a page with the dashboards for the broad sectors like above as well as all the Subsectors dashboards.
Broad Sector Moving Average Breadth
Broad Sector McClellan Charts
Broad Sector Breadth Thrust
The New High – New Low Differential
Well, after last week’s discussion, the markets did give some opportunities this week. Real Estate and Utilities were able to take advantage of the recent breadth strength and put in solid showings for the week even with the flat $TLT action. Real Estate has been the real winner out of these two since we began discussing them on the breadth extremes; the question is, can Utilities play some catch up if rates do continue to drop back down as the $FED fades from top position in headlines? Here in the sector world, again, nothing looks terrible, which is actually a change. We didn’t see huge gains in the broad market, but sector movement was fine and the laggards took the reigns this week while the leaders continued to rest. This is creating a correction in time so far and may be all we get.
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: As I mentioned in the breadth section, we are forming a triangle consolidation after a successful backtest of a major breakout from a year long consolidation zone in a major uptrend. That is a mouthful, but important when you put it in context together. All of those are good constructive actions as we attempt to solidify that breakout and position for the next move away from this level. That is the top scenario until some of the noise out there turns into actual deterioration in the data above.
I also want to wish you a very Happy Easter or Passover! I hope all of you enjoy your time off with Family and Friends this weekend to help recharge your batteries for the coming week. Without those things, none of this really matters a whole lot in the end.
Have a great week!
G. Thomas Lackey Jr, CMT CFP® CFS
Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)
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