CONSUMER DISCRETIONARY AND TECHNOLOGY SCTRS LEAD -- NASDAQ AND NYSE NET ADVANCING VOLUME OSCILLATORS TURN DOWN -- NASDAQ AD VOLUME LINE EXTENDS NINE WEEK SURGE -- NYSE AD VOLUME LINE EXCEEDS 2011 HIGHS
CONSUMER DISCRETIONARY AND TECHNOLOGY SCTRS LEAD... Link for todays video. Of the nine sector SPDRs, the Consumer Discretionary SPDR (XLY) and the Technology SPDR (XLK) have the highest StockCharts Technical Rank (SCTR). The SCTR for the Industrials SPDR (XLI) is in a close third. High SCTR scores indicate that these sectors show excellent relative strength and market leadership. Chart 1 shows the Consumer Discretionary SPDR (XLY) breaking above its 2011 highs in January and extending further in February. While the advance is getting overextended, this key sector is by no means weak. Broken resistance turns into the first support zone around 41. The indicator window shows the SCTR plot. In general, the security shows some relative strength when above 50 and some relative weakness when below 50. Notice that this indicator has been above 60 since early October and above 70 since late November. The SCTR is currently above 85, which means this sector shows exceptional relative strength.
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Chart 1
Chart 2 shows the Technology SPDR breaking resistance from a large inverse head-and-shoulders pattern. Broken resistance turns first support in the 26.50 area. The SCTR moved above 60 in mid September and never looked backed. It has held above 70 since late November and is currently above 90, which makes it the leading sector. You can see the SCTR scores for all ETFs here
and read more about SCTR in our ChartSchool.
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Chart 2
NASDAQ NET ADVANCING VOLUME OSCILLATOR TURNS DOWN... The AD Volume Lines are breadth indicators based on Net Advancing Volume, which is the volume of advancing stocks less the volume of declining stocks. StockCharts.com users can view Net Advancing Volume for the Amex ($AMUD), NYSE ($NYUD), Nasdaq ($NAUD) CNDX ($CDUD) and TSE ($TOUD). Before looking at the NYSE and Net Advancing Volume oscillator, lets dive into the intricacies of Net Advancing Volume. Chart 3 shows the Nasdaq with two versions of Nasdaq Net Advancing Volume ($NAUD). The first indicator window shows raw Net Advancing Volume fluctuating above and below zero the last ten months. Notice how there were surges above 3000 and below 3000 as trading became very lopsided in August. During this period there were high volume days when almost all volume (>90%) went into advancing stocks and days when almost all volume went into declining stocks. Volume levels subsided throughout September-October and returned to fairly normal levels from December onwards.
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Chart 3
The lower indicator window in chart 3 shows the Net Advancing Volume Ratio, which is Net Advancing Volume divided by total volume. This normalizes Net Advancing Volume by showing it relative to total volume. Moreover, we can now view Net Advancing Volume as a percentage of total volume. This makes it easier to determine the balance of power. In general, a surge above +.50 shows strong buying pressure, while a plunge below -.50 shows strong selling pressure. Notice that the August spikes do not look exceptional anymore because the scale ranges from +1 to -1. Analysts can identify +90% and -90% days quite easily with a ratio chart. Such readings were quite frequent in August, but became relatively rare events the last four months. The rally since December 19th has been quite strong, but we have yet to see a +80% day since December 20th (green dotted line). Nevertheless, the readings since December 20th have been decidedly positive.
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Chart 4
Chart 4 shows the 20-day SMA for the Nasdaq Net Advancing Volume Ratio in the indicator window. Notice how this indicator fluctuates like a momentum oscillator. Chartists can use trendline breaks, zero line crosses or divergences to generate signals or early warning signs. Personally, I like to use trendline breaks for early warning signals. After trading flat the since mid January, this indicator broke the mid December trendline on February 10. The Nasdaq has yet to turn down for confirmation though. A move below 2900 would signal that a short-term downtrend (medium-term correction) is taking hold. Users can click on any of these charts to see the settings and save them to their favorites list.
NASDAQ AD VOLUME LINE EXTENDS NINE WEEK SURGE... The AD Volume Line is a cumulative measure of Net Advancing Volume. The AD Volume Line rises when Net Advancing Volume is positive and falls when Net Advancing Volume is negative. Much like On Balance Volume (OBV), a line evolves and this line can be compared to the underlying index. Chart 5 shows the Nasdaq AD Volume Line moving above its July high with a sharp surge the last nine weeks. Even though the AD Volume Line has yet to break its 2011 highs, there are simply no signs of weakness just yet. If anything, the indicator is getting overextended and ripe for a corrective period, just like the Nasdaq.
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Chart 5
Before moving on, I would like to show the Nasdaq AD Volume Line using the Net Advancing Volume Ratio instead of the raw number. Chart 6 shows this version moving above its 2011 highs. Will the correct AD Volume Line please stand up? For the reasons listed above, I would opt for the AD Volume Line using the Net Advancing Volume Ratio. I am not too concerned with total volume. Instead, I am concerned with the balance of power, which is accurately reflected in the Net Advancing Volume Ratio. Buying pressure prevails when the ratio is positive and strong when the ratio is above .50. Selling pressure prevails when the ratio is negative and below -.50. The AD Volume Line based on this ratio reflects a running battle between buying and selling pressure.
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Chart 6
NYSE AD VOLUME LINE EXCEEDS 2011 HIGHS... Chart 7 shows the 20-day SMA for the NYSE Net Advancing Volume Ratio. The situation is similar to what we saw with the Nasdaq version. The indicator peaked on January 19th and turned lower the last few weeks. Even though the indicator broke the December 19th trendline, it has yet to move into negative territory and the NY Composite has yet to breakdown. The trendline break in the indicator is flashing a warning sign, but we need confirmation with a short-term support break in the NY Composite (7950). Keep in mind that such a move would be short-term bearish and not enough to affect the bigger uptrend.
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Chart 7
Chart 8 shows the NYSE AD Volume Line based on the Net Advancing Volume Ratio. This is the indicator that should be used for medium-term and long-term analysis. The AD Volume Line surged in October, consolidated in November-December and broke resistance in late December. New highs soon followed in January and February. While this indicator looks overextended and ripe for a pullback, it is by no means weak.
