S&P 1500 AD LINE BREAKS OCTOBER HIGHS -- CUMULATIVE NET NEW HIGHS LINE HITS NEW HIGH -- CHARTING RETAIL SALES AND THE S&P 500 -- JOBLESS CLAIMS SPIKE, BUT OVERALL TREND REMAINS DOWN -- SHANGHAI COMPOSITE BREAKS RESISTANCE WITH BIG SURGE
S&P 1500 AD LINE BREAKS OCTOBER HIGHS... Link for todays video. StockCharts Pro gives chartists the ability to upload their own data series and chart them as ordinary symbols. I have taken advantage of this feature to create some custom breadth charts. In particular, I uploaded Net Advances, Net Advancing Volume and Net New Highs for the S&P Total Stock Market ETF (ITOT), which is the S&P 1500. This broad market index covers the S&P SmallCap 600 ($SML), the S&P MidCap 400 ($MID) and the S&P 500. Chart 1 shows the AD Line breaking the September trend line in late November and surging above its October highs this month. The advance off the November lows has been extraordinarily strong. In fact, this surge compares to prior advances in October 2011, January 2012 and June 2012. Even though the indicator is looking overextended, the breakout is bullish until proven otherwise. Note that these charts with custom data are not linked to an actual SharpChart. They are just images.
Chart 1
Chart 2
Chart 2 shows the AD Volume Line with similar characteristics. Notice how the AD Volume Line broke the September trend line and exceeded the early November high with this four week surge. Overall, the AD Volume Line has been flat since January (yellow area). The swings, however, within the range have captured the swings within the market pretty well.
CUMULATIVE NET NEW HIGHS LINE HITS NEW HIGH... Chart 3 shows Net New Highs for the stocks in the S&P 1500. The main window shows the cumulative Net New Highs line and its 10-day EMA. The bulls have a clear edge as long as this line is rising, which is currently the case. The green dotted lines show the two bullish crosses that occurred this year. The lowest indicator window shows Net New Highs has a percentage of the total. Net New Highs are a far cry from their September lows, but still positive and still favoring the bulls. A move into negative territory would be the first sign of trouble.
Chart 3
CHARTING RETAIL SALES AND THE S&P 500 ... Most, if not all, economic statistics lag the stock market. There are two reasons for this. First, economic statistics are reported after the fact and are then subject to revision. Retail Sales for November was just reported, about two weeks after the month ended. Non-farm payrolls are reported at the beginning of every month and then subject to revisions the very next month. Second, the stock market is forward looking and often turns before the economy. Despite these shortcomings, investors can use economic statistics to define the overall economic environment and assist with long-term trends in the stock market. Note that these charts with custom data are not linked to an actual SharpChart. They are just images.
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Chart 4
Chart 4 shows Retail Sales ex-Food Services. This data comes from the St Louis Fed database (stlouisfed.org) and the corresponding symbol is RSXFS. Retail Sales drives some 2/3 of GDP, which makes it one of the most important economic indicators. This ten year chart shows Retail Sales remaining largely positive from 2003 to 2007 and from 2010 to the present. The big negative dips came in 2008 and 2009. There was even a small warning before the 2008 plunge. The blue lines mark the +1% and -1% thresholds. While a move to -1% or lower is negative, the affects are temporary as long as the indicator recovers with a quick move back to +1% or higher. The red-green arrow pairings show quick recoveries from -1% to +1% from 2003 to 2007. Something happened in 2008 as Retail Sales dipped to -1% in March and failed to get back above .5% (yellow area). This weakening foreshadowed a plunged in the second half of 2008. Currently, Retail Sales stumbled in April, May, June and October. The indicator, however, has yet to break below -1% and an extended downtrend in stocks is unlikely until we see such a move.
JOBLESS CLAIMS SPIKE, BUT OVERALL TREND REMAINS DOWN... Initial Claims is a data series that measures the number of first time jobless claims on a weekly basis. It is a volatile series and most economists use a 4-week moving average to smooth the data. As chart 5 shows, the trend in jobless claims often matches the trend in the stock market. Notice how jobless claims fell from mid 2003 to early 2006. Even though claims stopped falling in 2006, a significant rise did not occur until late 2007 when the 4-week average broke resistance. Yes, we have a divergence and breakout in jobless claims foreshadowing the 2007 stock market peak. Jobless claims peaked just after the stock market bottomed in early 2009 and have been falling ever since. There was a brief spike because of hurricane Sandy, but the overall trend remains down. Another upturn and breakout, however, would suggest a new uptrend in jobless claims and this would be bearish for stocks. Chart 6 shows Total Non-farm Payrolls for reference.
Chart 5
Chart 6
SHANGHAI COMPOSITE BREAKS RESISTANCE WITH BIG SURGE... After eleven months to forget, the Shanghai Composite ($SSEC) is producing a month to remember, and we are only half way through December. Chart 7 shows the index surging from 1950 to 2150 (10%) over the last two weeks. This is the biggest two week surge since October 2010. The indicator window shows RSI bumping against resistance in the 50-60 zone from August to December. When todays data is updated, RSI will no doubt break resistance to signal the start of a new uptrend. Chart 8 shows weekly prices over the last four years for a long-term perspective. SSEC moved to the lower trend line of the falling channel and the declined slowed the last few months. The December bounce off the lower trend line is positive and the next resistance zone resides in the 2300 area. Note that the Shanghai Composite is a broad index of Chinese stocks. The FTSE China 25 ETF (FXI) represents a much smaller cross-section of the Chinese stock market and the top five stocks account for over 40% of the ETF (see ishares.com for more details).
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Chart 7
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Chart 8
COAL, COPPER, MINING AND STEEL ETFS SURGE ALONG WITH SHANGHAI... The sharp upturn in the Shanghai Composite was attributed to some better-than-expected economic reports this month. An upturn or soft landing in China would be positive for the global economy and we are seeing strength in some basic materials oriented ETFs. Chart 9 shows the Coal Vectors ETF (KOL) forming an extended base with resistance in the 26 area. Chart 10 shows the Copper Miners ETF (COPX) challenging channel resistance in the 13.50 area. Chart 11 shows the Metals & Mining SPDR (XME) bouncing off support at 40 and nearing the upper trend line of a falling channel. Chart 12 shows the Steel ETF (SLX) challenging resistance in the 47 area after a big surge the last four weeks. Continued strength in the Shanghai Composite would likely trigger breakouts in these ETFs.
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Chart 9
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Chart 10
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Chart 11
