March 1, 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
After a nice move higher and multiple breakouts, the equity markets stalled this week. Only the $IWM eked out a small gain in the end. Looks like the markets got a little tired from the run and are beginning to digest these gains. A sideways move or a retest of the mentioned breakout are two scenarios that could be in play, but so far the equity action isn’t giving much for clues. The move back to the top by $UUP and $TLT turning in a strong performance might be a hint from the Intermarket RS List, but with Equities still taking the next 4 spots, we shouldn’t read too much into that yet. The Size & Style List remains in a positive structure with Small Caps on top along with the rest of the growth segments. This suggests to me a rest may be in order, but seeing positive structures in both lists doesn’t have me worried of anything more yet. After such a strong February, actually a short term rest that allows some rotation would be ideal from my view, but so far I continue to believe pullbacks may be sharp, but will remain short until this structure changes.
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
With the equity markets stalling this week, we are finally seeing the breadth figures take a rest as well. Here too though that looks like all it is so far. Many of the positives remain and the negatives are mostly short term in nature.
1. NHNL testing the highs we saw most of last year.
2. McClellan Summation continues and is now well above zero.
3. >80% Days are 5:2 positive year to date even with Friday’s breakout.
1. Advance Decline Line is trying to play a little catch up, but still lagging price for now.
2. McClellan Oscillator is back at the flatline threatening to break zero and force a rollover in the Summation Index.
3. Moving Average Breadth short term read diverged with price this week and the intermediate read it on the cusp of turning down.
This action makes sense for where we are, now we continue to monitor to see if any weakness spread into the intermediate and long term indicators we follow.
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
The New High – New Low Differential
Obviously, with the broad universe breadth not taking much of a hit, we don’t expect a tremendous amount of action from the sector world, but there was some to note. Utilities and Real Estate continued to struggle this week and are still seeing quite a few oversold breadth readings. I am still looking for more measurable (and gaugeable) bounces in this area to see if the longer trends are really over and if the positive action in $TLT continues into this week. Another area of weakness continues to be Energy. After a surge off the lows in breadth and price to lead the markets early this year, this sector has begun to weaken some leaving it stuck in the middle at the moment. I think this week will be important to monitor here as well to see which side wants it the most. The rest of the sector world seems to be holding up pretty well so I have no reason here either to suggest the current stall is hinting at any big reversal yet.
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.
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 on FINVIZ
Bottom 30 Sector ETF RS Rankings
Bottom 30 Sector ETF RS Rankings on FINVIZ
As my relative strength work suggests, I not only look at them for absolute RS values and rankings, but also (and maybe more often) use this method to discover areas that are moving differently than the rest of the pack or differently than that area has been recently. I call these my movers which most of you know I post each evening at gtlackey.com. When we see these bigger changes, it draws my attention to the charts and I take it from there. It could be a long, short or no play no matter what the absolute RS value is because the chart is where the trade plan is derived. The sector ETF page is a great place to try and find these changes or just review the nightly blog posts where I isolate them. As for this week, there is not really a lot to highlight specifically in the sector arena, but of course there are always opportunities so see where they sit above. Find the ones you want to explore more and go look at some charts!
Final Note: I am entering this week with a wait and see attitude. I do believe and have a feeling some rest or pullback is in our near future, but don’t have enough hard evidence to do anything other than monitor it closely. If buyers decide to start the month off strong, this will get pushed down the road a bit, but stay alert and maybe even look into a little hedging this week if that does not materialize. I mention hedging (if you can) because I don’t have any signals or indicators that are suggesting to me yet that outright selling is the best course of action. That said, action is what could change that view if necessary.
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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