-- SURGE AND FOLLOW THROUGH, GROWTH VERSUS VALUE, BREAKING DOWN XLY AND XLF, WATER ETF GETS INTERESTING, FIVE STOCKS IN STRONG GROUPS, NEW HIGH PARADE --
SURGE AND FOLLOW THROUGH BODES WELL... The major stock indices surged off support levels last week and followed through with breakouts this week. Chart 1 shows five major index ETFs on one chart for easy reference. The top chart shows the S&P 1500 hitting new highs in November-December, consolidating into January and breaking out in February. Overall, a triangle took shape and this is typically a continuation pattern. With the prior move up, the February breakout signals a continuation of the long-term uptrend. Chartists can mark first support near broken resistance and key support with the January-February lows. There is no sense thinking bearish as long as the majority of these indices hold their breakouts. Of the five indices, the S&P MidCap 400 and Nasdaq 100 hit new highs first and they are the clear leaders.
(click to view a live version of this chart)
Chart 1
GROWTH ETFS SHOW RELATIVE STRENGTH ... In addition to large, mid and small, we can also break down the S&P 1500 into six value-growth components. The S&P 1500 is a broad index that includes the S&P 500, S&P MidCap 400 and S&P Small-Cap 600. Breaking these three into their growth and value components produces six groups. In general, the stock market is in risk-on mode when growth outperforms value, mid-caps outperform large-caps and small-caps outperform large-caps. John Murphy wrote about relative strength in small and mid caps in Thursday's market message, and that it was positive for the market overall. We are also seeing relative strength in mid-cap growth and small-cap growth.
Chart 2 shows a Relative Rotation Graph (RRG) with the six style ETFs and the S&P Total Market iShares (ITOT) as the benchmark. This represents a "closed universe" because the stocks in these six style ETFs also make up the S&P 1500 Index, which is the benchmark index for ITOT. Relative to ITOT, the S&P SmallCap Growth iShares (IJT) and the S&P MidCap Growth iShares (IJK) are the two strongest and the clear leaders. Both are in the leading quadrant and both have the highest values for their RS-Ratio, which is the relative performance indicator used for the horizontal axis (red oval).
(click to view a live version of this chart)
Chart 2
SMALL GROWTH RELATIVE TO SMALL VALUE... Chartists can also see relative strength in small-cap growth by comparing the Russell 2000 Growth iShares (IWO) to the Russell 2000 Value iShares (IWN). Chart 3 shows IWO hitting new highs in December and February, and in a clear uptrend. The indicator window shows the IWO:IWN ratio rising since May. This means the numerator (growth) is increasing more than the denominator (value). In other words the Russell 2000 Growth iShares is outperforming the Russell 2000 Value iShares. If nothing else, the takeaway here is to prefer growth over value. Chart 4 shows IWN for reference. According to the iShares website, the financials sector accounts for a whopping 40.86% of IWN. This is likely the reason IWN is underperforming IWO.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
ANALYZING THE ENTIRE CONSUMER DISCRETIONARY SECTOR... I dissected the consumer discretionary sector in Tuesday's Webinar by breaking it down into three corresponding industry group ETFs: the Home Construction iShares (ITB), the Retail SPDR (XRT) and the Global Auto ETF (CARZ). Note that ITB and XRT hit new highs this week, and CARZ exceeded its December high. Today I am going to analyze the sector as a whole by using different sector tools available on StockCharts. Chart 5 shows three different ETFs representing the consumer discretionary sector (large-cap, equal-weight and small-cap). Notice that all three hit new highs this week. New highs across the board suggest broad strength in this sector. This is quite positive for the market overall because the consumer discretionary sector is the most economically sensitive sector.
(click to view a live version of this chart)
Chart 5
XLY High-Low Percent ($XLYHLP) and the 120-day EMA of XLF AD Percent ($XLFADP) are two breadth indicators I use to help define the overall trend. High-Low Percent is bullish after a move above +5% and remains bullish until a move below -5%. This indicator was briefly bearish in mid October, but turned bullish on 21-Oct and did not break below -5% during the mid December dip. The 120-day EMA of AD Percent turns bullish on a move above +1% and stays bullish until a counter-move below -1%. This indicator also turned bullish in late October and remains bullish. Instead of using the zero lines for bull-bear signals, note that I added buffer for my bullish-bearish thresholds to reduce whipsaws. The last indicator window shows the StockCharts Technical Rank (SCTR) for all three sectors. All three are currently above 90 and showing some serious relative strength.
WATCHING THE BREAKOUT ZONES IN FINANCE ETFS... This sector break down can be applied to any of the nine sectors. Chart 6 shows the Equal-weight Finance ETF (RYF), the Finance SPDR (XLF) and the SmallCap Financials ETF (PSCF). All three finance ETFs broke wedge resistance and these breakouts are holding. The breakout zones mark the first support zones to watch for a failed breakout. Below these three charts, we have XLF High-Low Percent ($XLFHLP), the 120-day EMA of XLF AD Percent ($XLFADP) and the three SCTRs. High-Low Percent has been bullish since 23-October and the 120-day EMA of AD Percent has been positive for over eight months.
(click to view a live version of this chart)
Chart 6
WATER RESOURCES ETF BOUNCES OFF KEY AREA... Chart 7 shows the Water Resources ETF (PHO) getting a bounce off the support zone in the 24.25-24.50 area. The ETF hit this zone in early August, mid December and January. There was a break below this zone in October, but the ETF recovered quickly with a big surge. More recently, there were two surges off support in the last six weeks and the ETF broke a small wedge this week. Price action is starting to look positive, even if the ETF still shows relative weakness. The indicator window shows the StockCharts Technical Rank (SCTR) with lines at 40 and 60. A move below 40 signals relative weakness and remains in play until countered with a move above 60. The SCTR moved below in late November and has yet to counter with a move above 60.
(click to view a live version of this chart)
Chart 7
52-WEEK HIGH PARADE ... The following list shows some of the key ETFs that hit 52-week highs this week - and it is a formidable list. There are also another dozen ETFs within spitting distance of a 52-week high and this list will certainly grow with Friday's price action. If anything else, this list is testament to broad strength in the stock market and supportive of a long-term uptrend.
Among the major index ETFs, we are seeing new highs in mid-caps and equal-weights.
Russell 1000 iShares (IWB)
Russell 3000 ETF (IWV)
Russell MidCap iShares (IWR)
S&P Total Market iShares (ITOT)
S&P MidCap SPDR (MDY)
Equal-Weight S&P 500 ETF (RSP)
Nasdaq 100 Equal-Weight ETF (QQEW)
(click to view a live version of this chart)
Chart 8
Among the styles, we are seeing new highs in mid-cap growth/value and small-cap growth.
S&P MidCap Growth iShares (IJK)
S&P MidCap Value iShares (IJJ)
Russell 2000 Growth iShares (IWO)
S&P SmallCap Growth iShares (IJT)
(click to view a live version of this chart)
Chart 9
Among the sectors, we are seeing new highs in consumer discretionary, healthcare and materials.
Consumer Discretionary SPDR (XLY)
Materials SPDR (XLB)
Equal-Weight Consumer Discretionary ETF (RCD)
Equal-weight Healthcare ETF (RYH)
Equal-weight Materials ETF (RTM)
SmallCap Consumer Discretionary ETF (PSCD)
SmallCap HealthCare ETF (PSCH)
SmallCap Technology ETF (PSCT)
(click to view a live version of this chart)
Chart 10
Among the industry group ETFs, we are seeing new highs in three from the consumer discretionary sector and two from the tech sector.
Leisure and Entertainment ETF (PEJ)
MarketVectors Retail ETF (RTH)
Retail SPDR (XRT)
Cloud Computing ETF (SKYY)
Semiconductor SPDR (XSD)
Aerospace & Defense ETF (PPA)
HealthCare Providers ETF (IHF)
(click to view a live version of this chart)
Chart 11
STOCKS IN STRONG GROUPS: DE, JCI, LPX, LRCX, SAH... The next five charts show individual stocks with bullish continuation patterns, such as falling wedges or channels. These patterns mark a correction after an advance. Upside breakouts suggest that the correction is ending the bigger uptrend is resuming. Deere (DE) comes from the industrials sector. Johnson Controls (JCI) and Sonic Automotive (SAH) come from the consumer discretionary sector and auto industry. Louisiana Pacific (LPX) comes from the homebuilding industry, and Lam Research (LRCX) comes from the semiconductor group.
(click to view a live version of this chart)
Chart 12
(click to view a live version of this chart)
Chart 13
(click to view a live version of this chart)
Chart 14
(click to view a live version of this chart)
Chart 15
