August 17, 2014 Strength In Numbers
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For more background on this report, the Strength In Numbers ppoint further explains what I am building here. Previous reports can be read here.
Macro Relative Strength
Click on either table for a deeper view including the Top and Bottom 20 ranked Broad Equity ETF and FINVIZ links.
This week we saw the meat of the bounce we mentioned last week. So far, so good. Equities turned in a solid week along with $JNK and $TLT which is workable, but not ideal. $QQQ made new closing highs to end the week. All the time commodities were taking body blows. The only equity index not showing much right now is $DIA. The move we made off the lows has now placed many of the indexes right under some stiff resistance. Here is where the bulls either show up and push us through or stay on vacation for now. It won’t necessarily be a one day event (although anything could happen), so give it a few days to unfold. The bond performance for the week is ominous to many; my experience is they can move in the same direction for long periods before it causes issues. I figure the data in this report digs deep enough into the equity world that I can get enough clues of change directly from there. I do continue to be encouraged by the Size & Style structure with growth dominating the top spots. It continues to suggest any further pullback is more likely temporary even if it does finally give the elusive 10% print everyone is waiting for. Bulls showed up when they needed to on a seasonally negative week. This improved the relative strength structure more and puts equities back in play. The rub is we are right at resistance in many indexes so it could take a few days to resolve or reject. It’s still summer so keep that in mind.
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 spent 4 of the 5 days this week in positive territory not giving the bears and top callers the expansion they needed. Instead, the 10sma curled back higher and is about ready to turn positive. Of course, that will take more highs too, which we aren’t seeing many of just yet.
The Advance Decline Line has now established that higher low and price is trying to move back above the broken longer term trendline after holding the one formed off the January lows. This needs more work for comfort, but it seems to be trying.
The McClellan Indicators admittedly got me a little excited this week. The Oscillator divergence worked beautifully to set up the Summation Index turn and cross to end the week. These are noted by the green arrows and have a solid record of showing up at or near intermediate lows in uptrends.
The Moving Average Breadth are continuing to work off the new signals and short term divergences we got last week. This time seems to have more energy which is a good sign, but needs to keep pushing here. Next step is getting the %>50sma back over 50%. A fail here would suggest another test lower.
Breadth Thrust Indicator also continues to plow higher off the short term divergence. More thrust is necessary from here. We would like to see the peak back up near .80 if the bulls want to take back control.
Percent Days are still working off the 80% signal from a couple of weeks ago. Just when you thought it might fail, we move swiftly higher in a few days time… that’s the markets for you. This signal has done it’s work, now we wait and watch for the next clue here.
Summary: After pointing out last week the critical point the breadth was sitting at, we got a swift response from the markets. The short term divergent and extreme signals worked well enough to improve the intermediate measures and begin to turn the long term measures back up before they endured major damage as well. It seems this was a big week under the hood. It needs to be met with follow through, but I would say it was a very solid start.
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. For the first three indicators below, if you click on each respective title or the Dashboard, it will take you to a page specifically for those sector breadth charts. I did not include pages for the Breadth Thrust or NHNL this week.
Broad Sector Advance Decline Line showed across the board improvement this week with the exception of Energy which continues to waffle. Real Estate is the only one close to new highs at the moment, but all improvement is still welcome.
Also, check out this subsector view I created to show where participation is moving to and from. This is where the most focused ideas will come from.
Broad Sector Moving Average Breadth are running strong on many of the short term readings after last week’s signals. This is starting to force improvement up the ladder as well. The %>50SMA is the important one going forward for now.
Broad Sector McClellan Charts are sitting at a great point right here. 8 of 10 Summation indexes crossed this week and most from below zero. Oscillators are running higher as well with many back above zero already. This looks constructive so far adding support to the Universe McClellan setup.
Broad Sector Breadth Thrust did their jobs by giving us the lift off point. All we look for at this point is continued up thrust to decent peaks. For most that is .7 or above. It is not critical right away but shows more energy entering the markets which is welcome.
The New High – New Low Differential mostly benign results here. That said, many flipped back to the positive side this week, but most are hugging the flatline.
This week the sector world continued to build on last week’s hidden positives. Many of the measures above continued to improve, but it is no secret the McClellan readings are the most important in my book. The turns here are very encouraging and have a solid track record. This week looks like a turn week in the stats, now we need to see if price and participation can continue as we enter zones of resistance above. This is where our longer read will come from so pay close attention, the clues will be in there.
Sector Relative Strength Rankings
First, I look at the Custom Indexes and see what they are telling us on a price weighted basis. Click on either chart for a deeper view.
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 world including the Top and Bottom 30 ranked Sector ETF and FINVIZ links (added below this week).
Top 30 Sector ETF RS RankingsTop 30 Sector ETF RS Rankings on FINVIZ
Bottom 30 Sector ETF RS RankingsBottom 30 Sector ETF RS Rankings on FINVIZ
Summary: Most sectors had decent weeks as we came off the lows. Energy is the real laggard at the moment, but some charts I have been looking at suggest that might be near an end as well. Health Care and Technology, and more specifically Biotechnology and Internet have been the clear leaders, but other subsectors like Medical Equipment and Semiconductors are definitely playing supporting roles and deserve a look. Sectors are setting back up and seem to be supporting turn here.
I have decided not to do the sector highlight each week at this point. I plan to do one here and there if something really jumps out at me, but for now I believe the report has enough depth to greatly focus your research to the right markets and sectors. This should save a good bit of time and allow you more time to ferret out the specific names you want to stalk.
Final Note: Last week’s stabilization turned into this week’s short term reversal. The reversal ran us straight into resistance which we will be dealing with in the coming week, but the energy behind the move is good so far and the participation is solid. The data suggests we could be in for another run back to the highs or further, so be prepared for that while factoring in it is still summer so continued chop is a good possibility. Don’t let it frustrate you. Have a plan, execute it and accept whatever scenario plays out because if yours is not the right one, the markets don’t really care.
Have a great week!
G. Thomas Lackey Jr, CMT CFP®
Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)
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