HIGH-LOW PERCENT SURGES ACROSS THE BOARD -- FINANCE SECTOR LEADS OFFENSIVE SECTOR BREADTH -- MATERIALS AND ENERGY SHOW WEAKEST BREADTH -- CRUDE OIL CONSOLIDATION EVOLVES -- GASOLINE SLIGHTLY OUTPERFORMS CRUDE -- PALLADIUM HOLDS UP BETTER THAN GOLD
HIGH-LOW PERCENT SURGES ACROSS THE BOARD... Link for today's video. Chartists can use High-Low Percent to measure participation in a market move and compare the degree of participation. High-Low Percent equals the difference between 52-week highs and new 52-week lows divided by the total number of stocks in the ETF or index. Compared to other breadth indicators, this one can be a laggard because it takes at least 52 weeks to make an initial new high or low. Chart 1 shows High-Low Percent for the S&P 1500, S&P 500, S&P MidCap 400, S&P Small-Cap 600 and Nasdaq 100. Notice that I placed these in the indicator windows for easy comparison. Because this indicator is shown in percentage terms, chartists can compare values and rank accordingly. First, notice that S&P 1500 High-Low Percent ($SUPHLP) surged above +20% and hit its highest level for the year. We can break down the S&P 1500 by looking at these indicators for the S&P 500, S&P MidCap 400 and S&P Small-Cap 600. S&P 500 High-Low Percent ($SPXHLP) surged above 25% and S&P Small-Cap 600 High-Low Percent ($SMLHLP) surged above 18%. Both hit their highest levels for the year and this is very positive for the market because it indicates that more stocks are participating in the advance.
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Chart 1
FINANCE SECTOR LEADS OFFENSIVE SECTOR BREADTH... Chart 2 shows High-Low Percent for the four offensive sectors and we can rank these values to find the strongest. Keep in mind that this is just one breadth indicator and there are other metrics to consider. XLF High-Low Percent ($XLFHLP) finished at +32.5% on Friday and XLI High-Low Percent ($XLIHLP) ended at 31.75%. The finance sector is the strongest and the industrials sector is a close second. High-Low Percent for the consumer discretionary and technology sectors is not as strong, but it is by no means weak. In fact, XLY High-Low Percent ($XLYHLP) hit a new high for 2014 and exceeded +20% for the first time this year.
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Chart 2
MATERIALS AND ENERGY SHOW WEAKEST BREADTH... Chart 3 shows High-Low Percent for the three defensive sectors (utilities, healthcare and consumer staples). Notice that XLU High-Low Percent ($XLUHLP) and XLV High-Low Percent ($XLVHLP) are by far the strongest of the nine. Over 40% of the healthcare sector hit a 52-week high and over 50% of the utilities sector hit a new high last week. The bottom two windows show High-Low Percent for the materials and energy sectors, which are by far the weakest.
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Chart 3
CRUDE OIL CONSOLIDATION EVOLVES ... Stocks surged, the Dollar surged and gold plunged over the last few weeks, but oil-related commodities remained stuck in consolidations and did not react much. The next three charts show Light Crude Futures (^LCZ14), Brent Crude Futures (^BZ14) and Gasoline Futures (^RBZ14). I am using the nearby futures contract for analysis because these provide the purest pictures for supply and demand. ETFs are good for trading, but they are often based on a basket of futures contracts and include other costs (trading commissions, slippage, management fees).
The overall trends are down for Light Crude, Brent and Gasoline, and a consolidation within a downtrend is typically bearish. A break below the October lows, therefore, would signal a continuation lower and we could then see another 5-10% decline. Even though the bears have the edge right now, chartists should always prepare for the unexpected. Chart 4 shows December Light Crude dipping below 80 four times in the last three weeks and then closing above 80 each time. The ability to recover shows support in this area and I will be watching resistance from the late October high. A break above this resistance level would be bullish and argue for a corrective bounce back towards the low 90s. The indicator window shows the USO Oil Fund (USO) with resistance at 31.50.
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Chart 4
GASOLINE SLIGHTLY OUTPERFORMS CRUDE... Chart 5 shows December Gasoline Futures (^RBZ14) holding up a little better than December Light Crude. Notice that Gasoline has a series of rising lows the last three weeks. The danger here is that a rising wedge forms and a break below 2.10 would be bearish. Should support hold, look for a break above the late October high to argue for a counter trend rally back to the 2.45% area. The indicator window shows the Gasoline ETF ($GASO) for reference. Chart 6 shows the December Brent Crude Futures (^BZ14) with a wedge taking shape the last few weeks. A break above 88 would be short-term bullish, while a break below 84 would signal a continuation of the prior decline.
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Chart 5
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Chart 6
PALLADIUM HOLDS UP BETTER THAN GOLD... Gold and silver moved to new lows in October and remain in clear downtrends. Platinum and palladium were also hit in October, but held up better than gold and outperformed the last two weeks. Platinum and palladium are interesting because they have various industrial uses, including catalytic converters for cars. Chart 7 show a long-term chart for Spot Palladium ($PALL) and this metal is firming at a most interesting juncture. After a breakout and surge to new highs, prices declined to broken resistance and the 50-62% retracement zone. If we assume that the breakout and new high are long-term bullish, then the decline back to the 750 is a correction within a bigger uptrend. Chart 8 shows December Palladium Futures (^PAZ14) bouncing off the 740 area twice and trading near the resistance zone in the 800-810 area. A break above this zone would be bullish for palladium and suggest that the long term uptrend is resuming.
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Chart 7
