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If you just want the highlights for now, check out the Executive Summary.
Macro Relative Strength
Intermarket Relative Strength ended the week with the strangest top three I can remember. I commented on the stream Friday night that I don’t think $DBA $TLT $SPY have been in that order in the 7+ years I have been running this scan. The split here in equities is quite stark with $SPY & $DIA near the top and $IWM second to last. I don’t think there is very much to read into this other than it is unusual. We can’t take that as a sign equities are out of the woods, but this week did improve all except the Small Caps rankings. The move off the lows held its first test this week. Further improvement could quickly shore things up here, but not there yet. Everything but Small Caps improved rankings this week and the bounce survived its first test. Shaping up a bit.
Equity Size & Style Rankings didn’t change much this week. Notable that even Small Cap Value was pushed down showing the abandonment there. Starting to look like a baby out with the bath water situation, but no proof yet of any reversal. Large safety is still the leader. Large Growth also had a solid week much due to $AAPL. Holding steady for now reiterating to us that Large and Safe are still favored here.
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 put in a -4 on Monday and then moved back to positive for the rest of the week. Not a blowout performance, but the key was not expanding to the downside and we didn’t. This long term measure still suggests the major trend still has possibilities.
The Advance Decline Line held above the all important trend lines for another week, but didn’t make much headway. The choppy nature has kept the Universe from making a new high since early March even with new highs in the S&P 500 and NYSD AdvDec Lines. One of the major goals of my universe is cleaner and more pure equity data which I think is what we are seeing here. This long term measure is holding up, but has been in a sideways move for 2 months now. Goes with the correction in time the broad markets have been experiencing.
The McClellan Indicators are actually giving me a little encouragement here. I looked back to find times where the Summation Index turned up (green arrows) and the Oscillator had a pivot extreme (blue arrows) and not many of those ultimately fail. Some get tested like now, but not many fail. Some do, so our eyes are wide open, but it never hurts to have some encouragement. Summation is waffling, but hasn’t failed yet while the Oscillator makes a higher low. Benefit of the doubt.
The Moving Average Breadth still need improvement, but they did move higher most of the week; even on Friday with the mixed markets we saw. It is important we move back over 50% on all measures soon, but improvement is improvement. This is not the bounce off oversold we are used to, but it remains constructive in the face of a mixed week.
Breadth Thrust Indicator fine with the higher low here. Not much to do until we get another extreme. Extreme pivot buy signal played out well, now just watching until it gives us another shot.
Percent Days no big percent moves with all the action over the last couple of weeks even with the retest. This is very different than the noise and rhetoric we are hearing. Nothing new here…at all.
Summary: In my book, this week held up very well to the challenge. Doesn’t mean we are out of the woods, but does add a bit to the idea this bounce should come closer to a retest of the highs than this. The long term breadth measures refuse to break down, the intermediate ones are waffling as they try to regain their footing, and the short term indicators did their jobs off the bottom and are in the middle now. You can call the bounce tepid so far, but not a failure. I might be singing a different tune next week, but I will wait and let the data direct that.
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. If you click on each respective title or the Dashboard for that indicator, it will take you to a page specifically for those sector breadth charts.
Broad Sector Advance Decline Line are still showing solid underlying participation. Health Care continues to look the worst, but most areas look sideways if not up. Even Technology, Consumer Discretionary and Financials don’t look bad here.
Broad Sector Moving Average Breadth is still the best way to get an overview of the entire market. Most areas here are improving after the recent lows. Utilities took a hit Friday which I like, especially when it is not showing up in the broader market for the day. If the money coming out of Utilities flows to more cyclical sectors, it would be a good sign.
Broad Sector McClellan Charts remain a mixed bag this week, but some of the more beat up sectors are attempting to improve. I do like how many of the Oscillators turned back up at much higher lows. The Summations still need to improve, but with a little time I think that is likely.
Broad Sector Breadth Thrust did not have any lower lows on the last retest and Technology was the only one to even touch the first line extreme.
The New High – New Low Differential are not showing many cracks just like the universe itself. A few negatives still persist in the weakest sectors, but not getting any serious expansion to note.
For the most part, the sectors improved throughout this week. Health Care still looks shaky, but that is about it at the moment. Technology, after getting the brunt of things last week, improved a good bit and put in some potentially key divergences we will talk about below. All in all, there is no evidence here of a major top. Everyone likes to pick out their favorite “Tell” sector and call a top, but as long as rotation continues, I would just go with the flow. I will temper that by saying, that does not mean we are in the all clear. We did just come out of a brutal momentum drain, and the bears will try to capitalize on that for a bit. They may win, so be ready, but so far when it comes to the broad markets, their actions are not impressive.
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 tradable 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, it will take you to a page that will go much deeper into the Sector ETF Relative Strength world.
Markets saw a nice snapback this week, but not enough to re-arrange the relative strength rankings. The defensive sectors continue to be on top and performing well, but (other than Energy) under-performed a bit this week. That is what I was talking about above in the sector breadth. If the growth and momentum can continue to outperform off these lows and move back up the RS Lists, it will go a long way to improving the outlook and putting confidence back in the trend. From here forward is proving time for the high flyers.
I will continue to include the Subsector RS Rankings that will become part of the Sector Select level of my service in the future. Sector Select will provide access down to the subsector level on both breadth and relative strength for those who trade sectors or just like to fish in the strongest feeding lanes. Speaking of strongest feeding lanes, check out this new subsector view I created this week to show where participation is moving to and from. This is where the most focused ideas will come from.
If you click on the table, it will open a page with more segmentation. Take a minute to study how these are moving on a price weighted basis before heading over to review the Sector ETF page or even deeper into individual names for opportunities.
Sector Drill Down
I usually try not to circle back so fast on a sector once I have highlighted it here, but this week Technology caught my eye and I couldn’t shake it. The sector layout is definitely not a layup here. And with the normal overly obsessive focus the Technology sector gets anyway made me not want to cover it again even more, but I really like the divergences I am seeing. The sector breaks down into 5 subsectors:
The Advance Decline Line has been making lower highs and lower lows since early March, but really hadn’t fallen that much comparing to price. Then it posts a divergence in the middle of this week above the horizontal line while price forged a lower low. I don’t get too many divergences on my AD Lines, so when one comes up I take note. It is early, so we will have to see how it develops.
Percent Days has put in a few clusters on the way down showing the force of the sell off. Still being a sector, I lessen the weight here.
The Breadth Thrust Indicator also formed a divergence on this week’s shot down and remained above the extreme line to boot. 2nd nice breadth divergence.
The McClellan Indicators are joining the divergence bandwagon. The Oscillator put in its 3rd divergence since its extreme with a much higher low in the indicator on this last one. This also is trying to force the Summation into a divergence of its own which is fairly rare on this short of a time frame. The number participating on the selling bouts are falling on each shot down.
The Moving Average Breadth even put in divergences on both the %>20sma and %>50sma to join in the fun. On this indicator especially, tight divergences can be great signals and if you add it to the other divergences, it certainly should at least get your attention.
The New High – New Low Differential did put in 2 negatives to start the week with the largest being -17. Not exactly a spike, but it is bigger than we have seen since the Summer of 2011. Back then, by the time we saw the new lows expand, we were near the low of the move.
These divergences are very fresh and could be slammed next week, but for now they are there and should be noted. When you go into the subsectors below, you can better differentiate where you might want to go fishing.
The real weakness has been fairly concentrated in Internet and Software & Services, but that is also where the most stark divergences now reside as well. You decide.
I have also added a page with all the Broad Sector Technology Breadth Charts to view them in the same layout as the subsectors above.
Here are the Technology RS Rankings:
Telecom & Wireless and Semiconductors have been the strength in Technology for a while, but still worth keeping an eye on the beat up areas at this juncture.
If you want to dig deeper into the Individual Consumer Staples RS Rankings by broad sector and subsectors, they are here with FINVIZ links for easy chart review. Note larger Subsectors do not expand well for better viewing, so for those lists I suggest using FINVIZ for closer examination once you have looked at the rankings on the main page. You may be surprised what you can find.
We got enough strength this week to keep the bounce theme going a bit longer. However, it wasn’t enough to get anyone excited to take risks. They may turn out to be a good thing if we continue to grind higher because at some point it is likely to cause the holdouts to chase back in. The fear of missing out can be a powerful driver. If we can make it through this week, I believe my Universe can test the highs again before any meaningful broader correction. That said, for the first time in years, once we see that test of the highs (or make a slightly higher high), I am looking at the “Sell in May” axiom more seriously than I have in many years. Doesn’t mean it will happen or I will change course, but I thought it was worth noting. It has my attention here based on the message of the market (and some compelling arguments from very smart people I respect.)
Have a great week! G. Thomas Lackey Jr, CMT CFP®
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