EIGHT OF THE NINE SECTOR SPDRS HIT NEW HIGHS -- RETAIL AND REGIONAL BANKS OUTWEIGH SEMIS AND NETWORKING -- S&P EQUAL WEIGHT ETF AND S&P MIDCAP SPDR RECORD NEW HIGH -- BREADTH INDICATORS CONFIRM WITH NEW HIGHS
EIGHT OF THE NINE SECTOR SPDRS HIT NEW HIGHS... Link for today's video. Even though there are some pockets of weakness in the stock market, one cannot help but be impressed with new highs from several key ETFs. First, note that eight of the nine sector SPDRs recorded new highs this week. These highs point to broad strength in the stock market and support the long-term uptrend. Chart 1 shows year-to-date relative performance for the nine sectors. Note that all sectors are up since December 31st. Some are up more than others and these are the leaders. Notice that the Consumer Discretionary SPDR, Industrials SPDR, Healthcare SPDR and Finance SPDR are leading this year. The Technology SPDR, Materials SPDR, Energy SPDR and Utilities SPDR are lagging. Of note, XLU remains well below its May high and is clearly the weakest of the nine sectors. The Energy SPDR recorded a new high today as it edged above its late October high. Exxon Mobile (XOM), the biggest component in XLE, gapped higher on Friday after reports indicated that Warren Buffet has taken a stake in the huge integrated oil company. Chart 2 shows XLE breaking flag resistance with a three day surge. Chartists can now mark key support at 85.
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Chart 1
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Chart 2
RETAIL AND REGIONAL BANKS OUTWEIGH SEMIS AND NETWORKING... The Networking iShares (IGN) and the Semiconductor SPDR (XSD) are lagging the broader market, but relative weakness in these two is offset by new highs in the Retail SPDR (XRT) and the Regional Bank SPDR (KRE). The networking and semiconductor groups are clearly important to the technology sector, but retail and regional banking are more important when it comes to the broader market. Chart 2 shows XRT breaking out in mid October, holding this breakout and surging to a new high with a big move the last six days. Broken resistance and the early November low turn first support in the 83-84 area. The indicator window shows the price relative falling in October and rebounding in November. Chart 3 shows KRE recording a new high in late October, consolidating with a pennant and breaking pennant resistance with a surge above 38. The pennant lows now mark support at 37.
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Chart 3
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Chart 4
S&P EQUAL WEIGHT ETF AND S&P MIDCAP SPDR RECORD NEW HIGH... The Russell 2000 ETF did not record a new high this week and continues to show relative weakness. This is negative, but I think this negative is outweighed by new highs in the S&P Midcap SPDR (MDY) and the S&P Equal Weight ETF (RSP). It is important that chartists keep the bigger picture in mind and look at the "bulk" of the evidence when assess broad market performance. I follow five major index ETFs: IWM, MDY, QQQ, RSP and SPY. Together, these five represent small-caps, mid-caps, large techs, the average S&P 500 stock and large-caps in the S&P 500. IWM is the only one of these five that did not hit a new high this week. A relatively narrow miss from one of five should be considered an anomaly. More importantly, four of the five did hit new highs and affirmed the long-term uptrends. Chart 5 shows the S&P Midcap SPDR (MDY) finding support near broken resistance last week and surging to new highs the last two days. This move reinforces support in the 229-231 area. Chart 6 shows the S&P Equal Weight ETF hitting a new high and establishing support in the 67 area.
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Chart 5
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Chart 6
The indicator windows show the price relatives (MDY:SPY ratio and RSP:SPY ratio). Both ETFs underperformed SPY because their ratios declined the last six weeks. Relative weakness is a concern, but this is negative is countered by new highs in the actual ETFs. The new highs show that the ETF is keeping pace on the price chart. In other words, MDY and RSP confirmed the new highs in SPY and QQQ. Short-term downtrends in the price relatives indicate that the ETFs are up less than SPY in percentage terms. This is relative weakness.
BREADTH INDICATORS CONFIRM WITH NEW HIGHS... When the major index ETFs record new highs, I go straight to the key breadth indicators to see if these highs were confirmed. The next three charts show breadth indicators specific to the S&P 1500: the AD Line, AD Volume Line and Net New Highs. The AD Line is a cumulative measure of net advances (advances less declines). This indicator captures the performance of small and mid-cap stocks. An advance counts as +1 and a decline counts as -1, regardless of volume or market cap. With more small and mid cap issues in the S&P 1500, this indicator clearly favors the little guys. The AD Volume Line is a cumulative measure of net advancing volume, which is advancing volume less declining volume. This indicator reflects the performance of large-caps because large-cap stocks typically trade much more volume than small and mid-caps. Net New Highs is the difference between new 52-week highs and new 52-week lows.
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Chart 7
Chart 7 shows the S&P 1500 AD Line ($SUPADP) pulling back from late October to early November and then breaking out with a surge this week. The indicator exceeded the late October high and forged a 52-week high, just like the underlying index (S&P 1500). Potential trouble starts if/when the AD Line fails to confirm and forms a bearish divergence.
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Chart 8
Chart 8 shows S&P 1500 AD Volume Line ($SUPUDP) also breaking out and hitting a new high. This indicator has been trending higher the entire year with a series of higher highs and higher lows. The early November low now marks first support.
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Chart 9
Chart 9 shows the S&P 1500 High-Low Line ($SUPHLP) moving higher the last six months and holding above its 10-day EMA. Actually, this indicator has been above its 10-day EMA since November 2012 and has captures the entire 12-month uptrend. New highs continue to outpace new lows and this supports a long-term uptrend in the stock market.
METALS/MINING ETF HOLDS UPTREND AS SHANGHAI WEAKENS... The Shanghai Composite ($SSEC) is down around 6% the last five weeks, but the Metals and Mining SPDR (XME) is holding up and has yet to break down. Something may need to give here. Chart 10 shows XME within a clear uptrend since late June. The indicator window shows the Shanghai Composite falling in June, rising into August and falling the last five weeks. The Shanghai Composite and XME were positively correlated until mid October, which is when they went separate ways. On the XME price chart, the late October highs and late June trend line combine to mark support in the 39 area. A support break here would provide the first sign of weakness in XME and suggest that XME will follow the Shanghai Composite low. Look for a breakout in the Shanghai Composite to provide support for the uptrend in XME.
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Chart 10
BOLLINGER BANDS CONTRACT FOR MARKET VECTORS COAL ETF... China is also an important player for the coal industry, especially since natural gas is replacing coal in the US. Chart 11 shows the Market Vectors Coal ETF (KOL) in an uptrend since early July. The uptrend is clearly slowing as the ETF failed to exceed the September high and formed a consolidation the last few weeks. Also notice how the Bollinger Bands contracted. Narrowing bands tell us that volatility is contracting and to prepare for a volatility expansion. The Bollinger Band Squeeze, however, does not give us a direction clue. For that we must turn to the actual price chart. A break above consolidation resistance at 29.5 would be bullish. Conversely, a break below the consolidation lows would reinforce the lower high and be bearish. The indicator window shows the KOL:SPY ratio peaking in early September and moving lower as KOL underperforms SPY.
