May 31, 2015 Strength In Numbers
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For more background on this report check out Strength In Numbers Explained. Previous reports can be read here.
Macro Relative Strength
Although we had decent volatility in equities this week, the action did not change the picture very much at all. Equities are all still in the top half of the Intermarket RS list, but $QQQ & $IWM slipped a little overall. The big movers were $UUP and $JJC from a relative strength standpoint which is not great from where I sit, but tolerable so far and on the radar. The $UUP strength has taken a toll on commodities, but commodity stocks are near some key retracements which makes this even more important to watch. On the Equity Size & Style list, we are seeing it lean toward smaller size and Growth which is good, but it does surprise me to see $IWP in the bottom half, so I will be monitoring that for a bit. Midcaps tend to be the stalwart, so when they show unusual weakness, I will watch a little closer. Overall, there is still a decent structure on both lists. We did see slight slippage this week in a few areas that are worth watching, but nothing game changing 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 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
Very little green this week in any sectors or subsectors. You really had to be in the right spots and all of the ones that were green had big M&A deals. Everything else was just a different shade of red. Commodities took the biggest hits with the $UUP strength, but Industrials, Consumer Staples and Real Estate also had it tough. All the while, the 4 horsemen performed relatively well. I am starting to get a little concerned about the commodity space, but as I mentioned above many are coming to critical junctures that are coming to a head soon. I don’t want to read too much into this shortened week. I believe we have still have good footing that is keeping us fairly stable, but just can’t seem to get any traction yet to move forward.
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.
The New High-New Low Differential
The Advance Decline Line
The McClellan Indicators
The Moving Average Breadth
Breadth Thrust Indicator
Percent Days
The breadth picture flipped back to softening a bit this week with the markets giving up a little ground. Not unusual, but does pull us back to a more neutral wait and see mode.
Positives:
1. NHNL Differential had 1 negative day, but back positive the rest of the week.
2. MA Breadth is not giving much ground in the volatility, waffling around 50%.
Concerns:
1. McClellan Summation Index is still moving down and below zero.
2. Advance Decline Line is getting ready to test the larger trend line.
We don’t have a lot of weakness showing yet and participation is still strong overall. However, the more it softens during higher volatility, the more likely we are to see a sharp shakeout. If we do get the shakeout, we will then start to look for potential evidence of a larger correction, but it is very early to start leaning that way yet. Always a possibility, but be sure not to put the cart before the horse here.
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.
Broad Sector Advance Decline Line
Broad Sector Moving Average Breadth
Broad Sector McClellan Charts
The New High – New Low Differential
Clicking on the highlighted links will go to a page with the dashboards for the Subsectors.
In the sector breadth world, the area I was looking at most closely the last few weeks was the potential turns in the McClellan Summation Indexes. We did see a few turns, but like the larger universe, many of them either could not cross or couldn’t hold if they did. This adds to my caution flags if we don’t see improvement quickly, but still feels like waffling to me for now. On a good note, we are getting near some Breadth Thrust Extremes in many sectors and subsectors (check out new SS Breath Thrust Dashboard by clicking on the Sector dashboard above like we do for AD Line) that should be monitored for reversal plays until we see a larger trend breakdown.
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: May did not turn out to be the bad month many predicted, the Macro market weakness this week was minor and didn’t really move the needle much. I think the overriding themes are all still the same from the recent weeks and that monitoring those relationships for continuation or divergences is something worth keeping on the radar. Commodities are playing off the $UUP movements. Interest rate sensitive areas like Utilities and Real Estate are keying to some extent off $TLT (and maybe Financials inversely). The rest of the sectors will get pushed and pulled by the volatility of these themes until market participants get more conviction. That is what we lacked most of May (and maybe longer than that) is conviction. The big question is, will summer be the time we are likely to find it? Only time will tell, but this data is sure to give us hints along the way.
Have a great week!
G. Thomas Lackey Jr, CMT CFP® CFS
Follow me on StockTwits and Twitter @gtlackey (All market data above are derived from Stockcharts.com, Esignal, and Reuters Datalink)
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