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Macro Relative Strength
The equity markets were slightly red this week as $SPY $QQQ failed to follow the IWM breakout we saw last week. The pressure has now pulled the $IWM into a backtest and important spot to see if the leadership there can continue and power these the markets forward. The crosscurrents are certainly high right now with Greece in every other headline and interest rate pressures not subsiding yet after the FED meeting, but even with those, we didn’t see much change this week. Well, $DBA was on the move as soft commodities firmed up. That’s different! Other than that, there is not much to talk about yet. Overall structure of the Intermarket RS List is not optimal, but acceptable while the Equity Size & Style list is still suggesting strength favoring smaller and growth names. No worrisome changes here 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.
Not any big changes in the sector world either. Financials and Health Care remain the leaders with Consumer Discretionary right behind them and improving. Real Estate and Utilities continued to bleed as they have for a while. The fear seems to be on the side of higher rates as we move into July. Every week has its winners and losers, but sometimes you can see and feel strong shifts in the landscape. This was not one of those weeks. Technology saw some selling that felt a little more violent, didn’t do a lot of broad damage, and felt more contained to certain spaces like cyber security as an example. The underlying rotation theme is alive and well and recently shifting toward Financials and Consumers; both Discretionary and Staples have been gaining ground as of late. The flow within sectors continues to help elevate the markets but is having a harder time driving things still higher as the large caps have been taking some hits lately holding things in check. There remain opportunities, but even those seem lethargic in the summer heat. Don’t take that as a signal to look for a big break down; instead, maybe just slow down yourself until things find more momentum one direction or the other.
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.
…And another week of back and forth. Breadth also seems to be taking one step forward and one step back. Not really seeing a lot of improvement for more than a day or two in a row before we get taken down a notch. The breadth data is confirming the listless action we are seeing in the broad markets.
1. NHNL started the week very strong and weakened to close, but didn’t go negative.
2. McClellan Oscillator nor Breadth Thrust Indicator have hit extremes since March.
1. New Lows were among the highest of the year to end the week.
2. Advance Decline Line is trying to put in a rare bearish divergence.
3. McClellan Summation Index is still above the signal line, but is challenging it again too quickly for my liking.
4. Most breadth readings are stuck in neutral and recently have stalled each time they looked promising for improvement.
Small Caps are still the leader and that helps support breadth figures, but thus far have not been able to ignite the markets into the next leg higher showing the large cap players are taking a vacation if you will. This week could offer a couple of catalysts for movement, but it is the movement itself that is ultimately important, not the particular catalyst. So far, nothing has been able to move things very far for a couple of months now.
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.
Just like we discussed in the sector relative strength section, here in the sector breadth section it shows which sectors are holding up and improving and which have been lagging. None of it tells us where things will trend from this point forward, but it still helps to know where the participation is right now. Health Care, Financials and Consumers show up the best down here as well confirming the strength and rotation in the case of the latter two. Even here though a good bit of the change was incremental and relative as opposed to absolute; however, this is what we look for in these uncertain times because those that show strength when the market does are often among the leaders during the next move.
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: Small caps continue to perform well and lead, but it doesn’t seem to be enough. The data here is back once again to a neutral look after backpedaling the second half of the week and taking away any breadth edge that looked like it was building. Still not weakening enough to get worried without seeing further deterioration. It is a tough place to be stuck to start the week and end the quarter, but as they say, it is what it is, and we must work with whatever we are served up. If we do have heightened volatility on this shortened week, look for stealth shifts in the overall landscape, sometimes they can sneak in near holidays.
Have a great week!
G. Thomas Lackey Jr, CMT CFP® CFS
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