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Macro Relative Strength
Rarely do I hear myself saying $QQQ was down this week with $TLT & $IEF. Okay, so $QQQ was down slightly, and it does deserve at least a few days rest, but with the rest of equities positive, it does seem a bit strange. The Intermarket RS list only saw minor changes as commodities battle for which one sucks the least right now. This week metals worked, but didn’t move the RS needle much yet. All in all, Equities continue to hold pretty solid as we go into the last few weeks of the year. In the Size & Style list, we continue to see Large caps dominate as they have a good bit of the year.
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.
We came into the week wondering if the markets were going to follow through to the downside. It started off pretty shaky, then the buyer stepped up and pushed us back higher into the weekend. The Universe closed just about where it did last week after it was all said and done. We have pulled back slightly off a test of the highs which is also pretty normal. Looking at the breadth charts, it doesn’t look particularly weak. Most cautionary is the AdvDec Line chart with the potential divergence, but even it is still just testing a trend line. The NHNL Differential strengthened as the week went on and looks fine. The McClellan Summation is still holding for now. Short term breadth indicators are not much help in this type of action. Nothing really changed this week, it was a little boring. The Universe backed off the highs, but the breadth is holding up and another test is a good possibility.
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.
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.
Most of the sector world is working with this exception of commodity plays. Even those are making fleeting attempts but can’t seem to get much traction yet and will be hard until the $UUP sees more than one day of weakness in a row. It is hard not to notice some recent performers like Financials, but it seems sectors just keep passing the baton as we move through the year. It hasn’t been the easiest to keep up sometimes, but it has kept the Major Indexes moving. I already mentioned Financials, but Real Estate still looks fine, Consumers are working, and Technology is getting participation. Even Utilities are getting strong breadth participation, but it is more likely due to lower energy costs than it is potential market issues. Commodities stocks are the main drag keeping these markets from being even further North while, on the other hand, the commodity weakness is helping fuel the economic expectation at the moment providing a tail wind to many other sectors. Markets are seeing it as a net positive for now.
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.
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.
Health Care continues to dominate the relative strength lists with Pharma and Devices on the move recently. Looking at the top Sector ETFs just above, Health Care and Technology are on top, but outside of Health Care there is more variance in the sector proxy lists in this section. Consumers remain right in the mix. Remember most of the ETFs are Cap weighted so they will favor the larger names which is also what has been working pulling most sectors up near their highs. The bottom lists here too are dominated by the commodity sectors just like the breadth suggested.
Final Note: The overall picture is constructive and actually improved the longer measures in a fairly flat week. The weakness remains selective but punishing while the strength in many areas goes further than you would like. People are choosing sides (and many changing sides) here at the end of the year trying to maximize what’s working and set up for early next year. There is nothing above that points to an eminent change in that view. Short term weakness is always on the table, but the overall participation and structure are showing there is still strength under the surface going into next week.
Have a great week!
G. Thomas Lackey Jr, CMT CFP®
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