NYSE Breakout Is Supported By Eight Sectors

• NYSE breakout
• Multi-sector breakouts
• Green shoots coming through for Europe and emerging markets

NYSE breakout

Monday’s action has seen the NYSE Composite, the $NYA complete a 4-month reverse head and shoulders pattern. If that breakout holds, and there are few grounds for suspecting that it won’t, it’s likely that we will see a test of the late January high. Chart 1 also shows that the breakout is being supported by the MACD, which moved into a bullish mode at the start of the month.

Chart 1

This rally would gain more credibility with an expansion in volume, but it is indisputable that its breadth is very impressive. Chart 2 testifies to this, as both the NYSE A/D line and the upside/downside volume line are both at new bull market highs, thereby dragging the major averages higher as well. Adding to the bullish evidence, we see the vast majority of sectors breaking out from similar patterns.

Chart 2

Multi-sector breakouts

Leading the way higher are consumer cyclicals (discretionary), which broke out on both an absolute and relative basis at the start of the month. This is shown in Chart 3.

Chart 3

Technology (Chart 4) has also been strong on an absolute and relative basis. There are no signs of a reversal in trend, except for the fact that both momentum indicators are overstretched. However, overbought conditions tend to be less influential in bull markets, so it’s not a serious worry.

Chart 4

Healthcare also broke higher in early June and is now at a crucial point as far as relative action is concerned. That’s because the RS line is right at its 2017-18 down trend line. Since the KST for relative action, in the bottom window, is bullish, an upside breakout looks a likely proposition.

Chart 5

Chart 6 offers a longer-term perspective for Healthcare, where we can see from the third window, that Healthcare has been an under-performer since mid-2015. The long-term KST for relative action has gone flat, which means that if the down trend line for the RS line in Chart 5 is surpassed that event could change the long-term balance as well, thereby leading to the violation of the 2015-18 down trend line and 65-week EMA in Chart 6. If so, that would be a very big deal!

Chart 6

REITS (Chart 7) under-performed in 2017 and the early part of 2018. However, last week saw them break to the upside on a relative and absolute basis., Both breakouts were also accompanied by a rising short-term KST.

Chart 7

Standard and Poor combine the transportation and industrial sectors into one, called the SPDR Industrials (XLI). However, the Dow Jones sector classification splits industrials into the two into separate sectors, IYT for transports and IYJ for pure industrials. It’s an important distinction because transports tend to be a leading and industrials a lagging sector. Also important, is the fact that Chart 8 indicates that both charts have broken to the upside.

Chart 8

So too have the SPDR Materials (XLB), which are featured in Chart 9. This positive action has not yet been duplicated by the RS line, which remains confined below its 2018 down trend line.

Chart 9

Finally, Chart 10 tells us that the SPDR Consumer Staples has just broken its 2018 down trend line. A rally to the 200-day MA area seems likely, but whether it can reach full primary bull market status is open to question, especially as the RS line has yet to reverse its 2017-18 decline.

Chart 10

Green shoots coming through for Europe and emerging markets

In my June Market Roundup webinar, I pointed out that Europe, in the form of the European Monetary Union (EZU) and MSCI Emerging Markets (EEM) ETF’s were at a crossroad. Since then, the EZU has managed to claw its way back above the red breakdown trend line in Chart 11. To confirm beyond a reasonable doubt that it really was a false break, we would need to see the price rally back above the dashed green down trend line at around $44.5. There is a good chance of that happening because my diffusion indicator monitoring the percentage of a universe of European country ETF’s in a positive trend, is deeply oversold. That indicator though, needs to reverse direction before we can classify it as bullish and apply another green arrow. On the other hand, if the price fails at the green line, subsequently taking out the late May low, that would confirm the top. Such a development would be quite bearish.

Chart 11

The MSCI Emerging Markets ETF, the EEM, is finding it tougher going than Europe. Although it has pulled back above the red breakdown trend line, the rally has been less impressive. Also, its diffusion indicator is less oversold. However, that has not precluded the launching of rallies from reversals that have taken place from a similar level.

Chart 12

Finally, Chart 13 shows the May/June battle between buyers and sellers in more detail. If the price can clear the green dashed down trendline at around $47, it will also have surpassed the two MA’s and will confirm the late May drop as a whipsaw. The KST for EEM is poised to support such a move, but there is no question that there is an extremely fine balance between bullish and bearish traders. Whoever wins will signal the direction of the next important move. I think the odds favor an upside break. However, a drop to $45 would represent a decisive move below the previous low, thereby confirming the price action since mid-2017 was a top, not a consolidation.

Chart 13

Here is a link to my June Market Round Up.

Good luck and good charting,
Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.