SMALL AND MID CAP ETFS HIT NEW HIGHS -- AS DOES HALF OF THE RUSSELL 2000 -- CONSUMER DISCRETIONARY SECTOR CHALLENGES PRIOR HIGH -- RETAILERS LIFT CONSUMER DISCRETIONARY SECTOR -- USING THE SECTOR SUMMARY TO FIND STOCKS IN A GROUP
SMALL AND MID CAP ETFS HIT NEW HIGHS... Link for today's video. The S&P MidCap 400 (MDY) and S&P SmallCap iShares (IJR) were lagging the S&P 500 SPDR and Nasdaq 100 ETF in late May, but started playing catch up in June and hit new highs today. This should not come as a surprise because the long-term, medium-term and short-term trends are up. In addition, the first trading day of the month has a strong bullish bias. Chart 1 shows MDY breaking above its April highs in early June and hitting a new high in July. The ETF is up over 9% from its mid May low, which makes this a pretty sharp advance for some seven weeks. Nevertheless, the breakout and new high are bullish. Broken resistance turns first support in the 250-254 area. The April-May lows mark key support in the 240 area. The indicator window shows the S&P 400 Mid-Cap AD Line ($MIDADP) hitting a new high as well. The AD Line measures the degree of participation for a move. A new high in the AD Line suggest that upside participation is strong and this reinforces the new high in MDY.
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Chart 1
Small-caps were the biggest laggards in April and May, but one small-cap index hit a new high today and this is positive for the group. Chart 2 shows IJR breaking above its March highs with a surge above 112 on Tuesday. The trading day is still young, but the ETF will at least record a new high intraday. The wedge breakout and rising 200-day moving average mark key support in the 106 area. The indicator window shows the S&P SmallCap AD Line ($SMLADP) near its March-June highs. A new high has yet to be recorded, but this breadth metric is bullish as long as the May lows hold.
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Chart 2
AS DOES HALF OF THE RUSSELL 2000... The Russell 2000 can be divided into two ETFs: the Russell 2000 Value iShares (IWN) and the Russell 2000 Growth iShares (IWO). The division is not perfect because the Russell 2000 Value iShares has around 1324 stocks and the Russell 2000 Growth iShares has around 676 stocks. This difference is probably because financial services is the largest sector in the Russell 2000 and most of these stocks fit the value group (regional banks). Chart 3 shows the Russell 2000 Value iShares (IWN) surging to a new high over the last two days. New highs are bullish because they indicate that buyers are willing to pay higher prices. In other words, buying pressure is strong. The indicator window shows the IWN:IWO ratio to measure the performance of value relative to growth. Notice that value outperformed from late February to early May as the ratio rose. This ratio declined the last seven weeks as value underperformed growth. Put another way, growth outperformed value over this time period. Chart 4 shows the Russell 2000 Growth iShares surging over 13% since mid May. IWO is up more than IWN and this confirms relative strength.
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Chart 3
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Chart 4
CONSUMER DISCRETIONARY SECTOR CHALLENGES PRIOR HIGH... Chart 5 shows the Consumer Discretionary SPDR (XLY) poised to join the other eight sectors as it challenges its March high. Eight of the nine sector SPDRs hit new highs in June and this shows broad strength in the stock market. XLY was the lone holdout as it hovered just below its March high. XLY surged above 67 today and came within a few cents of the March high, which is 67.42 (see price labels). A new high in XLY would be quite positive because the consumer discretionary sector is the most economically sensitive sector, and it was lagging. The indicator window shows the XLY AD Volume Line ($XLYUDP) breaking out in late May and foreshadowing a new high in XLY. I am using the AD Volume Line with XLY because XLY is weighted by market capitalization. Stocks with big market caps tend to trade more volume and this indicator capture large-cap performance.
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Chart 5
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Chart 6
Chart 6 shows the Equal-Weight Consumer Discretionary ETF (RCD) moving above its March (closing) high today. The trend here has been up for some time. Notice how the ETF formed a higher low in April and never even challenged the early February low. Today's higher high simply affirms the existing uptrend. The indicator window shows the XLY AD Line ($XLYADP) breaking out in late May and hitting a new high in early June. I am using the AD Line with this equal-weight ETF because the AD Line reflects the performance of small and mid-caps. Regardless of market cap, an advance is +1, an decline is -1 and unchanged is 0. The AD Line captures participation for the "average stock" because there are more small and mid caps than large-caps.
RETAILERS LIFT CONSUMER DISCRETIONARY SECTOR... Retail spending accounts for some two thirds of GDP and this makes the Retail SPDR (XRT) a good gauge for the economy. Chart 7 shows XRT moving above its March high with a big move the last three days. The ETF started with a break above the resistance zone in early June. This was followed by a break above the late November trend line in mid June and a break above the March high today. The breakout is still young, but XRT is in an uptrend with key support marked in the 83-84 area. The indicator window shows XRT relative to SPY using the price relative (XRT:SPY ratio). XRT is still lagging and the price relative needs to break above the May highs for retail to start showing relative strength.
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Chart 7
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Chart 8
Apparel retailers have been a major drag on the retail group over the last few months. Chart 8 shows the DJ US Closing and Accessories Index ($DJUSCF) falling sharply in early April, drifting lower into May and holding support in June. The index surged over the last few days and broke the April trend line. Look for a break above the April-May highs to fully reverse the downtrend.
USING THE SECTOR SUMMARY TO FIND STOCKS IN A GROUP... Chartists can use the Sector Summary to drill down into a sector or industry group and see the individual components. The DJ US Clothing and Accessories Index is part of the cyclicals sector. Click the sector name to see all industry groups in this sector. Click the industry group name to see all stocks in the industry. The columns can be sorted by clicking on the heading and open/closed by clicking on the arrows. The table below is sorted by price. Notice that RL, PVH, FOSL and HBI are up more than a one percent and showing some upside leadership.
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Chart 9
MORTGAGE FINANCE INDEX SURGES TO RESISTANCE... Chart 10 shows the DJ US Mortgage Finance Index ($DJUSMF) with a breakout in early June and consolidation the last four weeks. The index held the breakout as broken resistance turned support in the 6.20 area. A follow through breakout at 6.5 would be quite bullish for this group. Note that Fannie Mae (FNMA) and Freddie Mac (FMCC) are part of this group. As with the refiners (☹), these two stocks could be at the whim of Washington DC in the coming months. It is a risky group to say the least. Chartists can use the sector summary and drill down into the finance sector to find the individual stocks in this industry group index.
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Chart 10
