January 25, 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
Has the push begun? It was the first green week for equities in 2015 and it was strong enough to print reversal patterns in most major indexes. This absolute gain also ushered in small relative strength gains in the equity indexes with the exception of $DIA which fell one notch. That said, the Intermarket RS list leaders are $TLT $SLV $UUP which are not exactly what we want to see going forward. I am sure the ECB announcement has had a hand in that leadership. It will be interesting to see if things refocus on earnings in the coming weeks. Then, we move down to the Size & Style list and feel more encouraged with Growth quickly back at the top with just one week’s strength. I mentioned last week that it felt like buyers just hadn’t shown up so far in 2015 and the sellers were playing by themselves the first couple of weeks. Over the week, buyers have started to nibble and were engaging by the end, but it will take more following suit to hold the strength and test the highs. Buyers showed up for the first time this year, but still small so far. A push back to test the highs is brewing if bears don’t step in early week and apply even more pressure than we have seen so far this year if they are going to take us back to and through the support areas just tested.
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 Differential
The Advance Decline Line
The McClellan Indicators
The Moving Average Breadth
Breadth Thrust Indicator
Percent Days
As suspected last week, the markets were not ready to let go yet. They recovered nicely in both price and breadth measures, but just not enough to make any clear calls yet. I admittedly was wavering a little more last week, but continue to think you have to lean to the bullish side until bears can sustain any pushback. The edge shifts back to the positives this week:
Positives:
1. NHNL remained positive all week with both Moving averages curling back up.
2. Advance Decline Line made a higher low.
3. McClellan Oscillator & Breadth Thrust both made a pivot at extremes diverging with price last week and now back above zero.
4. McClellan Summation Index is attempting to turn up from below zero.
5. Price has not violated the right shoulder of the Inverse Head and Shoulders pattern.
6. >80% Days are 3:1 positive year to date.
Concerns:
1. Moving Average Breadth are hanging out near 50% levels.
2. Advance Decline Line doesn’t show much direction.
We found support where we needed to again. It is encouraging to see these measures shoring up, but still need expansion in breadth to pull back further from the crossover points we have been watching. Long Term breadth measures keep hanging in there, but not giving anything to get excited about yet while the shorter measures oscillate as they do.
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
Many sectors saw the support buys this week pushing the markets back higher with solid participation. The breadth look shows quite a few McClellan signals getting near if the recent weakness has subsided. Technology and Financials are nearing a cross while Energy continues to work off its second Summation Index divergence which is quite rare down here. So far none of this action has diminished the strength in Real Estate or Utilities much with yields continuing to move lower, then we have Health Care which continues to perform while the breadth cools off a bit and takes a rest. This is worth watching, but not a big concern as of now. The result is there are plenty of streams to fish in out there right now. Hard for me to see a major top working with this much action in so many different sectors.
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.
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.
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
I repeat, it is hard for me to see a major top when a little buying brings positive action into so many different sectors and spaces. Usually, when the markets are waning, the pockets of strength are very concentrated and sparse. That is not what we are seeing here. This has and I believe continues to be a market of rotations. We might just be seeing another one begin right here. It is early, but this week we saw the lower relative strength sectors and subsectors had stronger performances than the higher RS sectors. It is only one week so far, but is worth making note of when you see this type of action. The RS work above is designed to compliment the breadth work above and help narrow the areas you want to pursue. These markets are still giving plenty of streams to fish in if you are willing to do a little digging to find where the money is flowing.
Final Note: Just when the chatter gets the loudest and everyone thinks we are about to lose support, some buying steps in and pushes the markets back up into the range. This has been the MO for well over a year now and seems to still be in play. January repositioning has taken a minimal toll when all is said and done, so it is anyone’s ball from here. The trend is still working higher with the right shoulder still our reassessment point on a close below it. That hasn’t happened yet. Going into this week, I will be looking for some follow through of last week’s action and a retest of the breakout soon. So in reality, the only difference this week is we are not sitting on the bottom rail of the consolidation, but it sure does feel better here than it did last week.
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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