SMALL-CAP, MID-CAP AND NASDAQ ETFS LEAD, GROWTH CONTINUES TO LEAD VALUE, CONSUMER DISCRETIONARY ETFS BREAK OUT, HOUSING AND RETAIL LEAD CONSUMER DISCRETIONARY, WEBINAR EXCLUSIVES
SMALL-CAPS, MID-CAPS AND NASDAQ SHOW LEADERSHIP... Note that the charts below are part of the webinar, which was at 1PM on Tuesday, June 23rd (Click here for recording). It is hard to argue against the bulls with the Russell 2000 iShares (IWM), S&P MidCap SPDR (MDY) and Nasdaq 100 Equal-Weight ETF (QQEW) hitting new highs. Small-caps, mid-caps and techs represent the riskier end of the stock market because these stocks typically have higher betas than large-caps. Strength here points to a healthy risk appetite in the stock market. Overall, new highs indicate that buying pressure was strong enough to push prices to new highs. At the risk of sounding obvious, this means there were buyers at levels not seen before and this means buying pressure is stronger than selling pressure. That's all we need for an uptrend (buying pressure > selling pressure). Chart 1 shows QQEW breaking out of a triangle pattern.
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Chart 1
New highs mean these three ETFs are in clear uptrends and these ETFs represent the majority of stocks in the stock market. Note that IWM, MDY and QQEW are up over 6% year-to-date and this is a respectable return for around six months. Chart 2 shows IWM surging to new highs the last few days. With these new highs, I extended the Raff Regression Channel and key support is set in the 120-122 area. There could be some backing and filling after a 6% advance in less than two months. I would use broken resistance to mark first support in the 125-126 area. Chart 3 shows MDY with long-term support in the 270 area.
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Chart 2
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Chart 3
GROWTH CONTINUES TO LEAD VALUE... John Murphy noted that small-cap growth was leading small-cap value last week and this trend continues as the IWO:IWN ratio hit a new high this week. Chart 4 shows the Russell 2000 Growth iShares hitting new highs in December, February, March, April and June. Sounds like an uptrend to me. Broken resistance turns first support in the 154-155 area. Key support is set in the 147-148 area. The indicator window shows the Russell 2000 Growth iShares relative to the Russell 2000 Value iShares using the price relative (IWO:IWN ratio). This ratio is rising and this means growth is outperforming value. A preference for growth over value also indicates a healthy risk appetite in the stock market. Chart 5 shows the Russell 2000 Value iShares with IWN:IWO ratio. Notice how this ratio is falling as IWN (the numerator) underperforms IWO (the denominator).
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Chart 4
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Chart 5
FINDING GROWTH AND VALUE ETFS... There are several ETF pairings that chartists can use to compare growth and value. Chartist can use the Russell 2000 Growth iShares (IWO) and Russell 2000 Value iShares (IWN), the S&P SmallCap Growth iShares (IJT) and the S&P SmallCap Value iShares (IJS), or the S&P MidCap Growth iShares (IJK) and S&P MidCap Value iShares (IJJ). Chartists can find these symbols by searching for "growth value russell" or "growth value S&P" (without quotations). The image below shows a sample search with both indexes and ETFs in the results.
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Chart 6
CONSUMER DISCRETIONARY ETFS BREAK OUT... Corrections can be a function of price, time or both. A classic correction in an uptrend can involve a 38-62% retracement of the prior advance. This would be a price correction as price decline. There is, of course, a time element, but the price decline is the dominant part of this correction. A correction can also involve sideways price movement as prices simply tread water for a period of time. This would be a time-oriented correction.
Chart 7 shows the Equal-Weight Consumer Discretionary ETF (RCD) moving to new highs at the end of February and then embarking on a long sideways correction. This is just one big consolidation that formed a triangle from March to June. Price did not move much, but prices did "rest" for around four months. Obviously, this is a time-oriented correction. The ETF appears to be ending this correction because it broke the triangle trend line and hit a new high today. A new high in the most economically sensitive sector is clearly positive for the stock market overall. Also notice that there was a Bollinger Band squeeze and the ETF broke above the upper band. Chart 8 shows the Consumer Discretionary SPDR (XLY) with a breakout and new high as well.
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Chart 7
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Chart 8
HOUSING AND RETAIL LEAD CONSUMER DISCRETIONARY ... Chart 9 shows the Home Construction iShares (ITB) bouncing off the channel trend line in early June and moving above its May high this week. The rising channel defines an uptrend since December with higher highs and higher lows. The indicator window shows the SCTR moving above 90 as ITB becomes one of the leading industry group ETFs. In a separate, but possibly related note, new home sales hit a seven year high in May.
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Chart 9
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Chart 10
Chart 10 shows the Retail SPDR (XRT) hitting new highs into late March and then correcting with a triangle of sorts. The ETF broke out with a surge last week and continued higher again this week. The breakout is holding and this is very positive for the stock market. Note that retail spending accounts for some 2/3 of GDP.
WEBINAR EXCLUSIVES... Note that the topics below were part of the webinar at 1PM on Tuesday, June 23rd (Click here for the recording).
