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Macro Relative Strength
Not a great week for Equities or much else for that matter. Agriculture Commodities carried the water with strong gains in $DBA, but also helped $DBC turn in a positive week despite the bloodletting in $USO. The fear over how Greece will turn out was palpable this week as many believe the end is finally near. The action in the equity world was a swift and violent start to the week with the bulls trying to claw back in the game by week’s end. The Intermarket as well as Size & Style lists structures are questionable although not showing big fear as Growth keeps sticking out, but moved back up toward the larger names this week as $IWM took a hit. As we will see below, the breadth picture showed more damage casting a cloud over things right now. This week’s hit shook things up in both lists, but didn’t change to a decidedly bearish structure which doesn’t give anything actionable without more information from the early action 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 tradeable 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.
Very little green anywhere this week. Real Estate and Utilities were the only two that eked out something positive. Not saying much after these two sectors have been trounced over the last quarter. Some of the areas that got hit the hardest were recent leaders like Banks and some Consumer as profits were booked ahead of any geopolitical surprises.
Commodities looked decent on a relative basis in the Intermarket view, but Basic Materials and Energy Subsectors and ETFs all looked rough showing how much weight the soft commodities really carried this week. ETFs like $MOO and $PAGG are among the few that concentrate in this space.
Overall, this week did not feel like a big rotation, but more like a reduction of exposure. That could be event based or just an excuse to hide the distribution in a holiday week. The next two weeks should be very interesting to watch for a resurgence, a rotation or an outright exit in order to get clues of if this market is trying to form a larger top here.
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.
This week’s breadth picture is striking a larger warning than we have seen in a while. I stress it still could be event driven by the Greece situation and straighten out quickly on resolution, but this underlying action feels a little different right here. That feeling can be (and often is) wrong which is why we will keep the data front and center. The dichotomy we have here is the longer term breadth measures are weakening more than I expected, but the shortest term measures and signals are at or near extremes we watch for in an uptrend.
1. Breadth Thrust hit it’s first extreme since January and reversed.
2. Markets stabilized after Monday’s 90% down day.
1. NHNH Differential was negative all week dragging the 10sma down with it.
2. Advance Decline Line made a lower low after a divergent lower high.
3. McClellan Summation Index failed to hold the signal for the 2nd time this year.
4. Moving Average Breadth fell fast on Monday’s hit putting back down near, but not at extremes.
The breadth damage is deep enough to have us on notice going forward. It doesn’t mean a major top is imminent, but the deterioration here is concerning. That said, the short term measures suggest we could be near a short term extreme, but gauging any bounce here seems important to me for longer term implications.
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.
Clicking on the highlighted links will go to a page with the dashboards for the Subsectors.
The first thing regular readers might notice is I re-ordered the dashboards this week so they all are in alphabetical order from top down for easy review. However, that doesn’t make this week’s versions any more fun to review. The damage among many sectors was apparent, but still intermediate in nature. The longer term sector readings remain reasonable unless you are looking at Energy or Basic Materials which continue to languish. To get a broad picture of the sectors right now, take a look at the McClellan charts which show the individual Summation Indexes look rough. Sure, some are holding up okay, but looking at these together certainly does not excite.
There are quite a few Breadth Thrust extremes that fired off this week within a day or two of each other in the sector and subsector world. They might end up meaning nothing, but when you get that many a short period of time, it can be a nice positive. So even in the sectors, my longer term concern here is challenged by the short term extremes which can be good buying potential. I would look to capitalize on the signals and take it day by day. Don’t expect anything, just work with what plays out.
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: After leading us back up here, small caps took a hit this week taking the overall breadth with it. Greece was the excuse for a lot of it. The fear over this situation still has event status which should turn out to be a buying opportunity as investors begin to perceive a solution; but always be aware if the fear turns into a mindset as that is when it has longer lasting effects. The breadth deterioration is a concern since we can’t see much rotation during it. It becomes a bigger problem if the money starts to leave the market instead of rotating within it. This is what we will be watching for evidence of in the coming week, especially if Greece does get resolved, for now….
Have a great week!
G. Thomas Lackey Jr, CMT CFP® CFS
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