SECTOR/INDUSTRY STALEMATES, SPY MAINTAINS TREND, MDY AND IJR CORRECT, FINANCE MAINTAINS UPTREND WITH INSURANCE LEADING, STAPLES LEAD AS DISCRETIONARY GETS STUCK, INDEX AD LINES TURN MIXED, SECTOR BREADTH, WEBINAR DETAILS
SECTOR STALEMATE DEFINES TRADING RANGE... Click here for the Webinar recording. The S&P 500 and SPY are stuck in trading ranges because sector performance is split. Chartists can even see the market split at the industry group level as well. Looking at six-month performance for the 100+ Dow Jones Industry groups, there are 24 with double-digit gains over the last six months and 12 with double-digit losses. Overall, 55 industry groups show gains over the last six months and 50 show losses. This gives the market a slight bullish tilt. Chart 1 shows a partial table with the leaders. A full table is shown in the webinar.
Chart 1
At the sector level, we have the consumer discretionary, healthcare, finance and consumer staples sectors leading with uptrends. The industrials, energy and materials sectors are lagging with downtrends. The losses in the energy and materials sectors are quite "outsized" and these two sectors are punching above their weight.
PerfChart 2 shows the four leading sectors are up since March and outperforming SPY, which is up around .50% since March. Double digit declines in the materials and energy sectors are weighing heavily, but these have not been enough to break the broader market (SPY). Industrials are also lagging because of their link to the commodities, the mining industry and the energy sector.
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Chart 2
PerfChart 3 shows the equal-weight versions for these sectors. The Equal-Weight S&P 500 ETF (RSP) is down around 1.5% since March and weaker than SPY. This points to relative weakness in small and mid-caps. The leading equal-weight sectors are up less than the leading sector SPDRs. Strength in these leading sectors was not enough to offset weakness in the five laggards.
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Chart 3
SPY MAINTAINS TREND... Even though SPY is stuck within a rather tight range since March, the overall trajectory of prices remains up. How so? Chart 4 shows SPY forging 52-week highs in May and July, and the July low holding above the March lows. The green trend lines define a slightly rising price channel. Chartists can mark support in the 204-206 area. The indicator window shows the PPO (10,60,1) and the PPO (20,120,1) in positive territory. This means the 10-day EMA is above the 60-day EMA (PPO(10,60,1)) and the 20-day EMA is above the 120-day EMA (PPO(20,120,1).
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Chart 4
MDY AND IJR CORRECT... While SPY maintains its choppy uptrend, the S&P MidCap SPDR (MDY) and S&P SmallCap iShares (IJR) are in correction mode. I am calling this a correction because both hit 52-week highs in June and both are just 3% below these highs. Chart 5 shows MDY breaking support in early July and forming lower lows into late July. The Raff Regression Channel defines the current correction with resistance marked in the 275-277.5 area. A breakout here would end the correction and argue for new highs.
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Chart 5
The indicator window in the chart above shows a split with the Percentage Price Oscillators. The medium-term PPO (10,60,1) is negative and reflects the correction. The long-term PPO (20,120,1) was positive at Monday's close and supports the current uptrend. This long-term PPO is, however, barely positive and should be watched closely. Chart 6 shows IJR holding support and getting a bounce the last six days.
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Chart 6
XLF MAINTAINS UPTREND WITH KIE LEADING... The Finance SPDR (XLF) remains one of the strongest sector SPDRs and in a clear uptrend. Chart 7 shows XLF hitting a 52-week high with a surge above 25.5 in mid July. The ETF fell back below 25 and then firmed the last six days. There are plenty of twists and turns over the short-term, but the overall trend here is up and that is what really matters. The July low and March trend line mark support in the 24-24.25 area. Chart 8 shows the Insurance SPDR (KIE) hitting new highs throughout June and July. This is by far the strongest industry group within the finance sector. I will cover the Regional Bank SPDR (KRE) and Broker-Dealer iShares (IAI) in today's webinar.
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Chart 7
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Chart 8
INDEX AD LINES TURN MIXED... Chart 9 shows the AD Lines for the S&P 1500, S&P 500, S&P MidCap 400, S&P Small-Cap 600 and Nasdaq 100. The S&P 1500 represents the broad market AD Line because it is a combination of the S&P 500, S&P 400 and S&P 600. I prefer using the AD Line for S&P 1500 because it is more representative of the "stock market" than the NYSE AD Line. The NYSE AD Line does not include any Nasdaq stocks and, by definition, leaves out a significant portion of the stock market.
I am using the March lows as the reference point for these AD Lines and the S&P 500. Those holding their March lows are deemed relatively strong. Those that broke their March lows are deemed relatively weak. The S&P 1500 AD Line and S&P MidCap 400 AD Line are holding up so far. In contrast, the S&P 500 AD Line, S&P SmallCap AD Line and Nasdaq 100 AD Line broke their March lows. These three are the weakest. The red shading marks resistance for these three and breakouts are needed to negate this support breaks and put the uptrend back on track.
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Chart 9
BREADTH IMPROVES FOR STAPLES AND UTILITIES ... A reader asked if there was anyway to separate energy sector breadth from the rest of the market. We cannot subtract XLE breadth from SPY breadth, but chartists can analyze the individual sector AD Lines to separate the strong portions of the market from the weak parts. Chart 10 shows the AD Lines for the nine sectors and their 200-day moving averages for reference. As with last week, the consumer discretionary, finance and healthcare sectors are by far the strongest because their AD Lines hit new highs in July. The AD Lines for the consumer staples and utilities sectors moved back above their 200-day moving averages to show strength the last five weeks. These two sectors merit upgrades. The AD Lines for the technology and industrials sectors are below their 200-day moving averages and weak overall. Unsurprisingly, the AD Lines for the materials and energy sectors are the weakest and well below their 200-day moving averages.
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Chart 10
WEBINAR DETAILS AND DEMO... Click here for the Webinar recording.
