December 14, 2014 Strength In Numbers

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December 14, 2014 Strength In Numbers

12-23-2013 Cover Graphic

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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 Strength12-12-2014 Intermarket ETF RS Rankings

Intermarket ETF on FINVIZ

12-12-2014 Equity Size & Style ETF RS Rankings

Size & Style on FINVIZ

I guess the $QQQ lagging prior week was a sign the leader was tired.  This week all the major indexes gave up a good bit of ground.  Interestingly, the $DIA & $SPY took the hardest hit.  This action raised some caution flags in the Intermarket RS List with equities falling to the middle of the list.  But the middle of the list shows either some indecision or transition, but doesn’t provide enough to decisively move to one side or the other.  Most of this downside action continued to be lead by Energy names which had an inordinate effect on the $DIA due to some high share priced (or used to be high share priced) Energy components.  However, this week it was not limited to just that space, but spread to most of the market.  There just wasn’t much green to be found in equity land this week with the exception of Real Estate which we will discuss in a bit.  The Equity Size & Style shows the damage was spread out over styles too, but also hints to something that caught our eye in the Equity pieces in the Intermarket List.  Growth continued to outperform on a relative strength and absolute basis during this week’s selling.  This can change with short notice, but is hinting so far this is a normal pause and not currently suggesting the start of something bigger.

Universe 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 Differential12-12-2014 Universe NHNL

The Advance Decline Line12-12-2014 Universe AdvDecLine

The McClellan Indicators12-12-2014 Universe McClellan

The Moving Average Breadth12-12-2014 Universe MA Breadth

Breadth Thrust Indicator12-12-2014 Universe BreadthThrust

Percent Days12-12-2014 Universe Percent Days

This week ushered in a bit more damage on the breadth picture as we gave more ground. It is once again a very mixed picture, but could get pretty heavy if we don’t shore up soon. Now, as you read above, currently I still see this as a normal pause or retracement to back-test recent breakouts or just plain test the will of investors after such a strong run off the October lows.  With the markets looking heavy right now, that is a part we MUST not forget…how strong the move off the lows was in both price and participation.  These are not usually ending moves.

That said, as we get into our breadth review and start by looking at the long term measures, they have not improved as much as we would like to see off those recent lows and continue to have the potential to rollover if the weakness persists.  This has our eyes wide open if problems arise.  The NHNL Differential has flipped back to negative along with the 10sma giving two of the three signals for reducing exposure.  This one is a tough read with over 50% of the new lows coming from the Energy sector which is only about 8% of the market weighting.  We even saw the new lows diverge this week as the markets continued lower…tough read!  The %>200sma is also hanging out near the midline. Broad strength will push this above 70%, and the Advance Decline Line is having trouble with it’s downtrend line forming showing reduced participation on the last two moves higher.  All of those are cautionary, but none outright bearish right here.

The Intermediate views are mixed with the %>50sma still holding near 50% which is fine with the weakness the last couple of weeks, but the McClellan Summation is rolling over dampening the Intermediate view unless it can turn back up here near the flatline like we saw in October 2013 as the patterns do look similar.  So no clear direction on Intermediate.

Then we move to the short term measures which are nearing extremes, but in most cases are not quite there yet.  The thing is, with us seeing deep extremes in October, there is no reason we have to see them here if there is real underlying strength in this move.  The McClellan Oscillator and the Breadth Thrust are both heading to their lines now.  The %>20sma is also nearing it’s oversold line, but has some room to get there.  So none of these are in extremes yet giving any real signals, but then there is the Percent Days measure which gave 2 signals this week.  The first was a 90% down day on Wednesday which was followed by an 80% down day on Friday.  Usually, these are signs of short term bottoms especially when they come in pairs.  The rub here is when they expand from pairs to larger clusters over a couple of weeks, it can usher larger pullbacks like we saw in March/April and again in September/October of this year.  Percent Days only really suggest we are nearing a short term low and retracement, but do often show up close to more lasting market lows.

The action this week was definitely different than recent.  It put many indicators on notice, but was not enough to change the big picture yet.  We are still in an uptrend that has moderate breadth support and when the market gets challenged, the fear shows up pretty quickly in the readings as people are skittish.  That is usually a good sign for markets on a more intermediate to long term basis.  We will see if that proves true again.

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 Line12-12-2014 BSec AdvDec Line Dashboard

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 Breadth12-12-2014 BSec MA Breadth Dashboard

Broad Sector McClellan Charts12-12-2014 BSec McClellan Dashboard

Broad Sector Breadth Thrust12-12-2014 BSec Breath Thrust Dashboard

The New High – New Low Differential12-12-2014 BSec NHNL Dashboard

The sector world took a quick trip down this week as the markets had a pretty tough week.  We are seeing some extremes surface already in short term breadth measures.   Of course, the commodity spaces are firmly in oversold territory.  Energy weakness thrown on top of the $UUP strength has been a big culprit here.  I think these sectors are getting close, but not sure how close so I will be looking for some signs of strength.  One thing that might help usher in such strength is if the $UUP follows through to the downside next week.  Yes, this week was the first time in a while we have had a large black candle on this chart, but as always follow through is key.  The rest of the sectors are giving more short term pullback setups with the %>20sma readings getting low while the other Moving average stats hold up pretty well.  Both Consumer segments, Health Care and Financials all look to be in this position, then you have Real Estate that was the one green sector this week that continues to show resiliency.  Industrials are right on the cusp.  If they don’t reverse early week, the breadth picture is likely to get ugly quick.  Those are a few things I see, but I am sure there are more ideas in here, so do some comparisons. I would love to hear what you come up with.

Check out the Breadth Compilation Page and let me know what you think.

Sector Relative Strength Rankings

First, I look at the Custom Indexes and see what they are telling us on a price weighted basis.

12-12-2014 Broad Sector CI Relative Strength 12-12-2014 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 trade-able ideas.  Below that is the Equal Weighted version for comparison.

12-12-2014 Sector Proxy ETF RS Rankings 12-12-2014 Sector Proxy EW 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 Rankings12-12-2014 Top 30 Sector ETF RS Rankings

Top 30 Sector ETF RS Rankings on FINVIZ

Bottom 30 Sector ETF RS Rankings12-12-2014 Bottom 30 Sector ETF RS Rankings

Bottom 30 Sector ETF RS Rankings on FINVIZ

I don’t want to read too much into the week.  The changes in rankings were incremental in most places if at all with the exception of Technology taking a decent hit in the ETF world, but not much movement in my price weighted index.  Oh, and of course, there was Real Estate which continues to shine.

Final Note:  This week is a really tough read on many different levels.  In reality, I believe we are stuck in the middle right now.  The damage is not big enough to get overly worried, but is having enough effect to put us and our breadth measures on our toes.  The seasonality still favors higher, but shouldn’t be followed blindly.  The broader markets pulled back this week for the first time off the recent lows, so I see this as normal and way too early to be calling a top (which rarely works out anyway, so why keep trying?)  Above I laid out what we would need to see to move more bearish, so until we see that, we will prepare for and watch to see if support comes in soon as that is what would go with the current trend.

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)

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.


About Author

Tommy

is a Chartered Market Technician (CMT) and Certified Financial Planner (CFPr) in Greensboro Georgia (Outside Atlanta). Founding partner of Barber Lackey Financial Group, LLC, a Registered Investment Advisor. However, this blog is not affiliated with BLFG and does not make recommendations to buy sell or hold any securities.

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