Charts etc.

What worries me now

noreply@blogger.com (Unknown) — Wed, 29 Jun 2016 02:36:00 +0000

Below is a weekly chart of the NYSE Composite Index.

It shows price versus several different moving averages. It seems clear that the Index is rolling over. The faster, shorter moving averages are below the slower, longer moving averages -- not good and confirmation of a rolling over. And the Index price is "caught" underneath these moving averages (resistance).

Note how this compares versus 2001 and 2008. Eerily similar.

Also note how this compares versus late 2011. Then the Index price got below the moving averages, BUT the faster moving averages generally remained above the slower moving averages, AND the direction of the overall trend as per the MAs remained flat-to-positive, not negative.

Then things remained relatively bullish, esp. compared to now, where again clearly the trend via the MAs is currently negative -- like in 2001 and 2008.

I remain concerned.

Not Out Of The Woods Yet

noreply@blogger.com (Unknown) — Mon, 26 Oct 2015 14:19:00 +0000

Since the swift and dramatic correction in August, equities have put in an impressive rally off of what appears to be a double-bottom.

The S&P 500 has climbed about 11% from its August low and on Friday successfully broke through key resistance at 2050, the breached support level that led to the plunge in August. It will be important for the index to experience carry though this week, to rise clearly beyond the resistance area and towards prior highs of 2100.

It is a bit concerning to see the flatter Russell 2000 Index performing less well.

Whereas the S&P 500 has achieved reaching the low levels of August, the Russell 2000 has yet to get there (2000 level). In fact, the 1170 area looks to be serving as resistance thus far. Also note that the Russell 2000 peaked in June compared to the S&P 500 peaking a month later in July -- a bearish divergence as the R2000 Index made a lower high in July and continues to underperform the S&P 500.

On a longer-term monthly basis, I keep an eye on the following S&P 500 chart:

The chart shows four things that I have tracked over time: 1) the 6-month moving average (MA) vs. 12-month MA, 2) Unemployment rate, 3) stochastic, and 4) MACD histogram. This 4-item checklist has helped to serve as a reliable longer-term barometer for the stock market. Currently, the picture is somewhat worrisome. To run through the list:

The 6-month MA has pierced down through the 12-month MA, indicating a possible negative trend change. This occurrence does not always result in a trend change (see late 2010 and 2011) and it's more valid when there's greater daylight between the two MAs. However, it gave plenty of heads-up notice in 2000-2001 and 2007-2008 (blue circles). BEARISH
The unemployment rate (black line) remains in a downward trend, bullish. Note in 2000 and 2007 it broke downward trend pre-market corrections. But for now: BULLISH
The stochastic indicator (STO) has declined from above 80, but remains above 50, another good sign. Note in 1998, 2010 and 2011 the stochastic similarly eroded to near 50 but did not break down through that key level. For now: BULLISH
The MACD histogram is concerning. Currently the monthly reading is -25.4, well below -10 (blue line) indicating momentum thrust, if you will, has decidedly turned negative. Whereas the market corrections in 1998 and 2011 did not result in the MACD histogram submerging below -10, it clearly did so for 2000-2001 and 2008. My fear is when momentum turns negative this abruptly and strongly, it can tend to have legs or carry through going forward. BEARISH

To sum up, the weight of the evidence in the above chart is mixed with a 50/50 bull/bear split. However, given the MACD histogram in particular, I continue to lean on the cautious side.

Another indicator I follow that suggests we're not out of the woods yet is the percentage of NYSE stocks above their 200-day MA.

As shown in the weekly chart above, during the August correction, most stocks could not avoid the carnage. Only 20% of NYSE equities were able to remain above their 200-day MA. With the recent rally this indicator has improved to nearly 35%, however it remains far below the key level of 75% that I prefer to see for an all-systems-go signal.

For stocks to get below the 30% level (blue horizontal line), it means that most stocks have experienced significant technical damage and typically it takes some time for healing to occur in the form of widespread price recovery (breadth). Note in the chart that after declining below 30% in 2002, 2008 and 2011, this indicator eventually returned to the 75% or higher level in less than 12 months time, i.e. relatively soon, inferring a higher probability for an ensuing secular bull market. Yet a glaring exception is 2008, when early in that year this indicator dipped below 20%, then rose to as high as 60% before rolling over.

Does a reading below 30% suggest a very oversold condition for equities? Yes. In the long-term scheme of things (20+ years), do such extreme oversold readings make for good entry points? Arguably yes, they often do. HOWEVER, as I illustrated with 2008, there could be more ugliness to come and some may wish to exercise patience, waiting for the 75% threshold to be obtained.

I'll finish by showing one more chart:

S&P 500 trailing 4-quarter EPS (Y/Y %) is fast approaching the 0% level (orange line). Net profit margins remain at record levels, but typically when 4-quarter earnings get this low, net profit margins have reversed trend, heading lower. Worse yet, note the grey-shaded vertical bars indicating recessions and how the red line is often at 0% or lower before recessions take hold. Yes, this time may be different (as it was in 1985 and 1998), but the above chart remains another item of concern.

UPDATE: After a Down August, What Happens Next? Part 2.

noreply@blogger.com (Unknown) — Wed, 02 Sep 2015 13:23:00 +0000

After posting the blog entry on what occurs after down or negative-return Augusts, I received a few emails suggesting that I contrast these results with up or positive-return Augusts. By showing results for the 17 up-August years to compare versus the 13 down-August years, we would be able to see if the results differ. If the two sets of post-August returns were similar, then returns following down-Augusts would be less meaningful. Good suggestion.

Here are the results for all 30 years:

On the left are results from my prior blog post, showing September-December returns in years when August has been negative. The average return in those 13 Augusts was -4.7% and the average September-December period return was +9.2%, with notably all 13 Sep-Dec periods being positive. I also give the median percentage figures, -3.9% and +6.2% respectively.

On the right are results for the 17 years when August had a positive return. The average return in those 17 Augusts was +2.7% and the average September-December period return was -0.7%. The median percentage figures were +2.0% and +0.6%, respectively.

As I always warn, the usual caveats apply (sample size is limited, past results do not guarantee future results, etc.), but clearly years with down or negative-return Augusts tend to have better subsequent September-December periods than do those years with up or positive-return Augusts.

After a Down August, What Happens Next?

noreply@blogger.com (Unknown) — Wed, 26 Aug 2015 13:00:00 +0000

With equity markets going from bad to ugly in just a matter of days, one has to wonder what the near-term future has in store. So far this month the S&P 500 has plummeted -11.2%, putting this August on track to be the second worst performing month since the start of 2005. Topping the list is the month of October 2008 with a -16.9% return and currently in second place is February 2009 at -11%. The fact that performance this month is as awful as some of the worst months during the catastrophic market meltdown of 2008 into early 2009 helps to put this correction into proper perspective.

We're accustomed to thinking that September and October are typically more tumultuous months than August, but it's not true. On average over the last twenty years, August has fared worse than September or October, as have June and July. Summer months have been less than kind to investors and tends to support the "sell in May, go away" refrain.

Given this month is more than likely (!) to be negative, what has happened after down Augusts?

To answer this question, I looked at S&P 500 monthly returns for the last 30 years (1985-2014). In that time, the S&P 500 experienced 13 negative Augusts, shown below.

The average decline was -4.7% for those August months.

For the years that had a negative August, how did the rest of the year fare? Answer: quite well. Over the next four months (September-December), the S&P 500 rose by an average of 9.2%, not bad! Also note that the September-December returns were positive for all years, an impressive 13-0 hit rate.

The usual caveats apply (the sample size is limited, this time may be different, past performance does not guarantee future results, etc.), but given the painful price action and scary headlines of late, it's at least somewhat reassuring to know that the near-term future can be bright(er).

Risk Appetite Indicator Not Confirming Recent Market Move

noreply@blogger.com (Unknown) — Mon, 05 May 2014 15:03:00 +0000

Along with several other indicators, I use the ratio of high-yield "junk" bonds (HYG) to TLT to help gauge the risk appetite of investors, i.e. is the current market environment risk-on or risk-off? When the HYG:TLT ratio is trending down, it infers a risk-off bias is taking hold and is generally bearish for equities.

Source: Stockcharts.com

The chart above shows the S&P 500 in the upper inset and the HYG:TLT ratio in the lower inset. Note that with the market's recent attempts to make new highs, the HYG:TLT line has not confirmed this move, instead continuing to head south.

Such a non-confirmation or divergence has proven to be something worth keeping in mind. Bearish divergences in 2007, 2010 and 2011 were quite timely as the HYG:TLT ratio did not confirm the trend in the S&P 500. Also, the bullish divergence in late 2008 / early 2009 suggested that the stock market's vicious decline was coming to an end, with the HYG:TLT bottoming in December 2008 and making a higher low in March 2009.

Will The Real US Dollar Please....

noreply@blogger.com (Unknown) — Fri, 28 Mar 2014 14:21:00 +0000

One could argue that the DXY Index is perhaps the most common representation of the US Dollar (USD). However it's not the only representation, and depending on which one is chosen can often dramatically alter one's view of the USD.

The DXY measures the performance of the USD versus a basket of six foreign currencies, deriving a geometric mean based on preset weights. Currently the currency with the largest weight (by far) in DXY is the Euro at a whopping 57.6% weight. The currency with the next largest weight is the Yen at a much more meager 13.6% figure.

An alternative measure for the USD is the Fed Reserve's trade-weighted representation (USTWBROA on Bloomberg). It offers a depiction of the USD that takes into account a much broader basket of currencies, currently comprised of 20+ regions and/or countries. And the weights are flatter with the largest weight, China's Yuan, set at 20.8% and the next largest weight, the Euro, at 16.2%.

Over time the DXY and USTWBROA have tracked fairly closely, but as shown below, that's not been the case since the latter half of last year.

Source: Bloomberg

Whereas the DXY broke down through a rising trend in the 3Q of 2013, the USTWBROA has maintained its steady ascent within the rising trend. Obviously the strength of the Euro and the variance in composition and weights of the two USD representations have much to do with this fairly recent disconnect. But depending on which measure one chooses to portray the USD, quite a different view can emerge. In the chart above, the DXY appears bearish and yet the USTWBROA appears quite the opposite. Food for thought.

Market Outlook and Materials vs. Consumer Cyclicals

noreply@blogger.com (Unknown) — Tue, 11 Mar 2014 15:17:00 +0000

First, apologies for the recent lack of blog posts, but I've explained in the past my current situation (ongoing job search due to my employer shutting down). With regards to the market, frankly I haven't had much to say since my posting on February 11th. On February 3rd, when the S&P 500 was around 1780, I wrote that I wanted to see at least two things occur to confirm a bottom, 1) the S&P 500 put together three consecutive up days off this low or one significant up day with a bar/candle range spanning 15-20+ points, and 2) the MACD to trigger a buy signal, i.e. for a bullish crossover to occur in the 12- and 26-day EMAs, also shown with a positive histogram. Both of these conditions were achieved on February 11th, see chart below (orange line).

Since February 11, the S&P 500 has risen 4.3% and is fast approaching the upper-bounds of an ascending channel (red lines). Longer-term the market remains in a solid uptrend, however several oscillators currently reside in overbought territory and I would expect this rally to slow down, consolidate sideways or even pullback from these levels.

The weekly S&P 500 chart below also suggests an interim peak may be at hand:

Despite the fact the S&P 500 is up YTD, attaining a new all-time high, note that the weekly MACD has yet to confirm this rise in the Index, instead remaining in a downtrend and establishing a bearish divergence. As shown in the chart above, a few negative divergences have developed over the last few years and all eventually resulted in a market pullback or correction, some more severe than others.

One of the more interesting developments YTD is the erosion in relative performance of consumer cyclical stocks (I wrote about on January 21 and February 14) and the resurgence in what has been a longtime laggard, the materials sector.

The weekly chart above plots the relative performance of the XLB vs. XLY (or Materials SPDR vs. Consumer Discretionary SPDR). In late December, the XLB:XLY relative price successfully broke through a two year declining trend line and XLB's outperformance over XLY has continued into 2014.

Will this trend continue? A significant factor will be the strength of the US dollar.

The weekly chart above shows the relative performance of the XLB vs. S&P 500 (lower inset) and the US dollar (USD, upper inset). It's fairly plain to see an inverse relationship exists as the relative return of material stocks tends to fare better when the USD is weak and declining.

Regular readers know that I turned bearish on the USD last October and I have yet to see a compelling reason that warrants changing that stance. The US dollar is down since early October and the weekly chart above shows the USD has been carving out a descending triangle formation of sorts since the 2Q of last year. If the USD breaks to 79 or worse, it would signify a clear breach of support as indicated by the gradually ascending trend line. I would also point out the developing two-year bearish divergence between this modestly rising trend line (higher lows) and the downward trending MACD indicator, which also resides below zero. Finally, the Death Cross condition remains in place for the USD, i.e. the 50-day MA is below the 200-day MA.

(Source for all charts: Stockcharts.com)

Emerging Markets Remain Relatively Submerged

noreply@blogger.com (Unknown) — Wed, 19 Feb 2014 13:00:00 +0000

Emerging markets as a whole just can't seem to get out of their own way. The MSCI Emerging Markets ETF (EEM) is down 6% YTD and has been underperforming the S&P 500 for years. What is the current outlook?

Ultimately I believe a view on emerging markets in isolation is not enough and instead should be framed emerging versus developed, or as more of an asset allocation decision. Should I be repositioning more funds out of developed (S&P 500) and into emerging markets (EEM), or vice versa?

I have found that over time the relative return of industrial metals versus a commodity index (CRB) does a very good job at leading the relative performance of the EEM vs. the S&P 500. The relationship makes sense since emerging markets tend to have a high sensitivity to global economic activity, and industrial metals tend to have a higher sensitivity to global economic activity than most other commodities.

Source: Stockcharts.com

The weekly chart above shows five signals (2 buys, 3 sells) since 1999, triggered by trend line breaks in the industrial metals vs. CRB relative return (lower inset).

Note that a relative-return buy signal for EEM has yet to be triggered. Therefore, based on this one indicator, better to remain overweighted in developed (S&P 500) and underweighted in emerging.

Consumer Discretionary: Pain Has Been Wealth-Indifferent

noreply@blogger.com (Unknown) — Fri, 14 Feb 2014 14:23:00 +0000

A few weeks ago I asked the question, "Is the amazing run for consumer discretionary stocks coming to an end?" Based on the hourly chart below, the jury is still out on that question.

The XLY continued to decline into earlier this month, underperforming the S&P 500 as shown in the upper inset. Since February 3rd, the XLY has bottomed and risen by about 6%, however note the relative performance. Initially the ETF outperformed sharply when rallying off the low, and yet since last Thursday the relative return of the XLY has reversed course and trended downward. This trend is in stark contrast to the ascending absolute price trend, resulting in a bearish divergence.

I would also point out that with many consumer discretionary/cyclical stocks, the relative pain suffered YTD has been income or wealth-indifferent. As shown below, several higher-end, luxury names have taken it on the chin just as badly as companies associated with middle- to lower-income consumers.

High-end, luxury stocks vs. S&P 500

Middle- to lower-income stocks vs. S&P 500

The January Barometer, Another Take

noreply@blogger.com (Unknown) — Wed, 12 Feb 2014 12:07:00 +0000

I know it's a bit past-due, but I wanted to offer another take on the so-called January Barometer ("as goes January, so goes the year"). Others have already weighed in on this subject, quite skeptically overall, and yet I'm not so sure that this skepticism is warranted.

From data in The Stock Trader's Almanac, I put together the following:

Since 1950, there have been 40 occasions when the S&P 500 has been up in January and 24 times when the S&P 500 has finished down in January. For the 40 years when January has been up, the S&P 500 finished the year higher 36 times and was down for the year in just three occasions (with one year finishing near exactly flat, excluded). For the 24 years when January has been down, the S&P 500 has finished those years higher in just 11 occasions, with 13 of the 24 years resulting in down years. The key column above is on the far right, "% UP," listing the percentage of up years. Overall, for the entire 1950-2013 period, the S&P 500 has been up in 47 years and down in 16 (again, excluding the one flat year) for a 73% up percentage. Compare this 73% base line figure to 90% up years for the S&P 500 when January has been up and just 46% up years for the S&P 500 when January has been down. Interesting.

The following is from Ned Davis Research:

In the period 1928-2012, there have been 54 up Januarys and 33 down. What has happened after these Januarys, for February-December, thus excluding any effect January may be having on results for the entire year? For up Januarys, the ensuing February-December period has returned 8.3% on average or a median return of 10.9% for a 78% up hit rate. Whereas for down Januarys, the February-December period returned just 2.8% on average and an anemic 2.3% median return for a 58% up hit rate or percentage.

Based on the data above, I wouldn't be so quick to dismiss the January Barometer. It appears there might be something to it.

Encouraging Signs

noreply@blogger.com (Unknown) — Tue, 11 Feb 2014 16:14:00 +0000

With regards to a market bottom, last Monday I wrote that for starters I'd like to see 1) the S&P 500 put together three consecutive up days off this low or one significant up day with a bar/candle range spanning 15-20+ points, and 2) the MACD to trigger a buy signal, i.e. for a bullish crossover to occur in the 12- and 26-day EMAs, also shown with a positive histogram. As of today, it appears both of these conditions have been met.

Source: Stockcharts.com

The S&P 500 chart above shows three consecutive up days (including two fairly wide bars) and the MACD histogram turning positive. Granted, I would prefer to see a more meaningful buy signal from the MACD, but it's moving in the right direction. It's also encouraging to see the RSI (upper inset) get back above 50.

The NYSE High-Low Index is rising off an oversold level:

Typically when this index first rises from such a low level, it suggests a bottom is near. However, given the compressed severity of this recent correction, it wouldn't be unusual for the market to pullback on the heels of this recovery rally. As further confirmation that a credible low has been established, look for the MACD of the NYSE High-Low Index to trigger a buy signal (positive histogram) -- which has yet to happen.

We're Still Not There Yet

noreply@blogger.com (Unknown) — Mon, 03 Feb 2014 15:10:00 +0000

Last Tuesday, I asked "are we there yet?" with regards to a market bottom. My answer then was no, not yet, and it remains my answer.

What will it take to change my view? For starters, I want to see two things happen.

First, I'd like to see the S&P 500 put together three consecutive up days off this low or one significant up day with a bar/candle range spanning 15-20+ points. Obviously both conditions occurring would be even better. The orange boxes in the daily chart above identify past instances when either of the two conditions have occurred. With the market able to string together at least three straight days of gains and/or experience a big positive spike for the day, it goes a long way towards indicating that sentiment is shifting from fear and caution to more assured, risk-seeking behavior by investors. And as shown in the chart above, we're not there yet. That said it's encouraging to see the S&P 500 holding above the 100-day moving average (red line), which has served as sturdy support in the recent past.

The second thing I'd like to see occur is for the MACD to trigger a buy signal, i.e. for a bullish crossover to occur in the 12- and 26-day EMAs, also shown with a positive histogram. I always prefer to see a meaningful signal with the histogram getting beyond just barely turning positive, but again as shown in the chart above, such a bullish signal is quite a ways off from happening anytime soon.

Having commented on the near-term outlook for the market, I thought it would be appropriate to briefly review a much longer-term perspective.

The monthly chart above displays the S&P 500 going back to 1997. In short, the longer-term backdrop for the market remains solidly bullish. I would become very concerned about a secular decline if 1) the 6-month moving average (blue line) were to cross down through the 12-month moving average (red line), 2) the stochastic were to breach 50 to the downside (note blue boxes), and 3) the rate of unemployment (orange line) were to begin to trend higher (see previous blog post). All three of these conditions occurred in late 2000 and in late 2007 or at the start of 2008. None of the three conditions are in place currently. The 6-month MA remains 75 points above the 12-month MA, the stochastic is extended at 95 (!) and the unemployment rate continues to trend down at 6.7%.

Of course, these conditions could change in the near future, and understand that I track (much) more than three indicators or conditions. But the larger point remains: it would take months for these conditions to change and until that occurs, the long-term market outlook continues to look bullish.

Are we there yet?

noreply@blogger.com (Unknown) — Tue, 28 Jan 2014 16:36:00 +0000

Wow, that didn't take long! Depending on the indicator or metric, the current market correction has already reached oversold levels or is fast approaching it.

As shown in the S&P 500 chart above, the stochastic (STO, lowest inset) was at 80 last Tuesday and a week later is now below the oversold threshold of 20. That's quite a compressed and forceful sell-off. The MACD histogram at -7.5 has also attained an oversold level.

This correction or pullback is not especially surprising given the MACD continued to exhibit a bearish divergence (shown in chart above, but also mentioned numerous times on this blog), sentiment had reached optimistic extremes (see P/C ratio blog post) and I discussed how the frequent near-term abrupt reversals this month (see hourly chart) were concerning, indicating "investor confusion or indecision regarding what lies ahead in the immediate future." I would also mention that seasonally the third week in January has typically been rough for the market.

To be clear, the chart above shows the S&P 500 remains in a well-defined, secular uptrend -- a long-term bullish backdrop. The 50-day moving average has been breached, but this has occurred more than a few times within this ongoing uptrend, and the 100-day moving average has served as capable support, now residing at 1764.

So the question is: are we oversold enough, i.e. are we at a bottom yet? I would argue not yet. Referencing the chart above, both the MACD histogram and stochastic have reached oversold levels, however we want to see them turn up and give crossover Buy signals to better confirm the arrival of a meaningful bottom.

As for other indicators, the 10-day TRIN got close to 1.40, a level which has signified intermediate to longer-term lows in the past:

Although for most of last year, the 10-day TRIN reaching the 1.20-1.30 range was often enough to establish a bottom.

The 10-day NYSE advance-decline volume indicator has not (yet) reached the -200 threshold that typically denotes a meaningful low:

But again, last year the -100 level was often enough to satisfy a bottom.

The 5-day equity put-call ratio has spiked higher but remains very low, inferring still too much optimism exists:

And the 4-week NYSE advance-decline line got below zero, but has not reached the -500 level, much less -250:

In short, it appears selling pressure since early last week has been severe, with the market rapidly approaching an oversold condition, but based on past precedence has not yet reached washed-out levels.

(Source for all charts: Stockcharts.com)

Is the amazing run for consumer discretionary stocks coming to an end?

noreply@blogger.com (Unknown) — Tue, 21 Jan 2014 16:25:00 +0000

Last October, I asked the question, "Is sector leadership changing?" At the time, relative sector performance was getting somewhat blurry and there were indications of a potential changing of the guard in sector leadership, with the consumer discretionary sector in particular showing uncharacteristic relative weakness.

As a reminder, since the stock market low in March 2009, by far the best performing major U.S. sector has been consumer discretionary/cyclicals.

As I wrote last August:

With the world seemingly coming to an end financially, in large part due to a deeply in-debt and beyond-extended U.S. consumer, the last area most experts thought would do well over the next several years would be the consumer cyclical/discretionary sector. These stocks were deemed a no-brainer must-avoid. Judging from the chart below, such stocks have not performed all that badly (!), in my mind putting together one of the most stellar periods of outperformance since tech stocks in 1999 to early 2000.

However, since December 18th of last year, the day Bernanke offered more clarity on plans for Fed tapering, effectively launching this most recent market rally, sector performance has been interesting.

The chart above shows absolute returns for the S&P 500 Index and the nine major U.S. sectors. Note that I use the Guggenheim equal-weight sector ETFs, which reflect a truer depiction of performance as they are less prone to being skewed by a few mega-cap constituents. The S&P 500 is up 1.55% with health care, industrials, materials and technology sectors outperforming the Index. What's most interesting is all sectors have achieved positive returns since December 18th -- except the consumer discretionary/cyclicals sector, posting a woeful -1.5% absolute return.

This surprising underperformance is further made evident in the following charts.

In just the last few weeks, the relative price of the XLY has broken down through a well-defined, 17-month ascending trend line. Note in the chart above the bearish divergence occurring in the MACD, clearly deviating from the rising trend in relative price.

A similar picture holds true when viewing the equal-weight consumer discretionary sector ETF (RCD) versus the equal-weight S&P 500 ETF (RSP).

As with the XLY, the relative performance of RCD broke trend this month, quite drastically I might add, and again the MACD exhibits a bearish divergence.

Let it be said that the consumer discretionary/cyclicals sector has been counted out before only to right itself and continue on its impressive, and in many ways, confounding run. And that may once again be the case here, with the sector taking a breather of sorts after a prolonged period of uninterrupted outperformance. But the sector's recent lag in both absolute and relative returns is very conspicuous and even striking when you consider it has greatly deviated from all other sectors, and that even the seemingly perennial-underperforming utilities sector has been able to eke out a +0.35% gain. In short, outlier price action is always worth keeping a close eye on.

As for sectors appearing bullish at this point, the industrials sector is one.

The above chart shows the equal-weight industrials sector ETF (RGI) vs. the equal-weight S&P 500. Late last year, the sector successfully broke out of a massive triangle formation and has since been on a relative-return tear.

Another sector exhibiting a bullish relative chart is health care.

The equal-weight health care sector ETF (RYH) has been steadily outperforming the equal-weight S&P 500 for the past two years, but this month relative price kicked into another gear and broke out of a rising wedge formation. A pullback often occurs after such a breakout, as momentum pauses and looks to reenergize.

It's worth mentioning that the recent outperformance of the health care sector is not due to one or two high-flying industry groups. Although biotech stocks have certainly been stellar performers, market-beating returns have occurred across several industry groups in the sector. The chart below shows performance in the period for the S&P 500, biotech, pharma, medical devices and HC services, respectively.

Put/call ratio at very low level

noreply@blogger.com (Unknown) — Wed, 15 Jan 2014 12:03:00 +0000

The following chart is concerning. It shows the 3-month moving average of the equity put/call ratio (red) vs. the S&P 500 (black):

Source: Stockcharts.com

This put/call ratio has not been this low since early 2011, just before the S&P 500 peaked. In general, when this P/C ratio reaches levels below 0.60, it indicates a market stretched to the upside with investor sentiment excessively optimistic and frothy. Typically the market consolidates or corrects at these junctures. The timing isn't perfect -- it often is not when it comes to sentiment indicators -- and I prefer to wait for this P/C ratio to meaningfully turn up to get a more accurate bearish signal.

FIVE isn't so alive anymore

noreply@blogger.com (Unknown) — Mon, 13 Jan 2014 18:28:00 +0000

I wrote about FIVE last November and said if and when I ever sell the stock, I would report it here. I am doing so today.

The chart has broken trend.

Source: Stockcharts.com

The 200-day moving average effectively represents an ascending trend line and it was recently breached to the downside on high volume. There appears to be support within the $36-$38 range, but since early December the stock has suffered dual high-volume declines, the more recent breaking trend, and my preference is to take the loss and move on.

I still believe in the longer-term story for FIVE and as often happens with gap-down stocks, price could very well revert up to close the gap, getting above $42. But prudence, discipline and risk control will dictate my actions, as always.

January as a barometer

noreply@blogger.com (Unknown) — Mon, 13 Jan 2014 16:28:00 +0000

When it comes to calendar year cycles and seasonal tendencies, January is considered to be a tell-tale month. As goes January, so goes the rest of the year is the market adage.

We can't draw any conclusions yet given the month is only half over, however the first five days of January are frequently cited as having predictive ability in calling the market's direction for the rest of the year. The venerable Stock Trader's Almanac documents the following data:

Since 1950, S&P 500 performance for the first five trading days of January has been up on 40 occasions and down on 23. Of the 40 times when the five-day performance was up, the S&P 500 finished the year higher in 35 of those 40 years for an impressive 88% hit rate. For the 23 times when the first five days suffered a negative return, the S&P 500 ended higher only 12 times for a more meager 52% hit rate. Note that for all years since 1950, the S&P 500 had 47 up years and 16 down years, meaning 75% of the 63 years finished up.

For the record, this year the first five trading days for the S&P 500 returned -0.6%. Also, many people debate whether this info is statistically significant, questioning the sample size and possible flawed assumptions concerning causality. I will let the reader draw his/her own conclusions, but in isolation I find the data to be at least interesting and worth mentioning.

As for an update on the market, let's review the daily chart.

Source: Stockcharts.com

The S&P 500 Index rallied in late December to reach the upper-boundary of what looks to be a developing ascending, broadening wedge formation. The Index has since pulled back some but continues to look a bit extended as it remains well above the 50-day moving average. Note the bearish divergence in the MACD (orange line) -- something I pointed out in November -- has not gone away.

That said the breadth picture appears very healthy.

The NYSE A/D line (lower inset) finally confirmed the S&P 500's move to new highs in late December and has since surged to new highs this year. It's a bullish indication to see the broader NYSE A/D line reach new heights despite the S&P 500 recently stalling at around the 1840 level.

The stock market clearly remains in a well-defined uptrend longer-term, however in the very near-term the following chart is a bit concerning:

The YTD hourly chart of the S&P 500 shows numerous abrupt reversals, with rallies suddenly reversing course and swiftly taking dives (red boxes). All of this action is occurring within a fairly tight range (1820-1840) and it could simply infer a period of investor confusion or indecision regarding what lies ahead in the immediate future.

Ultimately a price breakout of this range, up or down, will obviously help to clarify the likely ensuing direction for the market. But until that occurs, such frequent and abrupt intra-day reversals with wide-range bars/candles are worrisome and something to monitor.

Eurozone: Rising Like A Phoenix, Part 3

noreply@blogger.com (Unknown) — Thu, 09 Jan 2014 16:15:00 +0000

Last August, I wrote about how Eurozone stocks were defying the doubters by "tearing it up" at the time. In October, I again discussed the bullish outlook for this region and further pointed out that the strong move in these equities was just another example of "prices reacting well ahead of any news."

Don't look now but Eurozone stocks are heating up again.

Over the last 20 trading days, the S&P 500 is up by a bit more than 1.6%, but as shown in the chart above, Eurozone ETFs have performed significantly better with the Euro Stoxx 50 rising by 4.1% in the period.

In fact, the Euro Stoxx 50 Index chart continues to look very bullish.

Source: Stockcharts.com

The Index broke out of a bullish cup-with-handle formation in December 2012 and proceeded to make higher highs with slightly lower lows, more or less holding up at support around 2600. Last September, the Index successfully broke through an ascending trend line, now serving as support at the 2950 level.

It's important and very revealing to show a chart of the poster child of all that was going wrong in the Eurozone region not that long ago.

The Global X FTSE Greece ETF (GREK) plunged in the summer of 2012, getting to as low as $9, before making the slow and quite volatile climb to its current level of $24. Note in the chart above that GREK established a double-bottom last year (blue circles), which ultimately became a portion of a bullish cup-with-handle formation. With the start of this year, GREK has broken out of the handle, inferring price should run further from here. But the bottom line is for Greece equities to appear this bullish, something(s) certainly must be changing for the better in the region!

Perhaps my favorite Eurozone ETF has been Spain.

The chart of the iShares MSCI Spain ETF (EWP) displays two overlapping bullish formations. Drawn in red is a cup-with-handle formation including the recent break out of the handle, and in blue is an inverse head-and-shoulders formation with a clear breach of the neckline last September. Need I remind that although Greece received most of the attention initially when the euro crisis erupted, Spain (and Italy) was the next country to receive ample scrutiny as default risk became a real concern.

It's encouraging to see that EWP has more than doubled off the bottom in 2012, yet it's not especially surprising. As is often the case when a crisis situation occurs and is then alleviated or resolved, what leads markets off their extremely depressed lows are typically the riskiest assets, and in this case Greece and Spain certainly qualify.

I could show more bullish charts for countries in the region but they all generally look good to great. Again, Eurozone equity charts have been (correctly) indicating for some time that the region has taken a meaningful turn for the positive, and recent economic data has indeed been improving -- surprised?

Update on 10-year UST yield and equities

noreply@blogger.com (Unknown) — Tue, 07 Jan 2014 17:23:00 +0000

A few months ago, I discussed the relationship between the 10-year UST yield and equities (S&P 500). In short, the two have been highly correlated over the last several years. This tight relationship can be seen in the following chart:

Source: Stockcharts.com

Since the summer of 2012, the yield on the 10-year T-note (red line) has been in an uptrend, doubling from approximately 1.5% to 3%. In that time, the S&P 500 (black line) has likewise been in an uptrend, rising by about 40%. I wrote then:

Why would rising interest rates be good for stocks, and vice versa? Three related reasons come to mind: 1) rising yields = falling bonds, inferring capital is being reallocated from bonds into stocks, 2) rising interest rates infer a stronger economy and less need for Fed assistance via QE, with a healthy economy being bullish for stocks, and 3) capital very often flows into US T-bonds for safety reasons, driving down rates or yields, and because such capital flow indicates risk-off, it's bearish for equities.

With the Fed recently indicating that tapering was certainly in the cards, albeit modestly, the 10-year UST yield has continued to rise and the bullish inference for equities is the economy has been improving well enough for QE to no longer be an absolute necessity.

Also during October of last year, in a post entitled, "10-Year UST Note Has Dandruff," I presented the following weekly chart of the 10-year T-note:

A bearish head-and-shoulders formation is highlighted (blue circles), including the breakdown in the rising trend line (orange) and breach of the neckline (red line). At the time I wrote, "$127 has become a key level for the 10-year note, something to monitor closely. I do expect the neckline to hold and for the UST to roll over." As shown in the chart above, the 10-year note did rally to the $127 neckline only to roll over and decline to its current $123-$124 level.

The purple numbers in the chart indicate S&P 500 levels at key turning points for the 10-year UST note. In contrast to yield, when the T-note rises, equities have tended to fall, and vice versa. Since the UST note peaked in 2012 (at the "head"), breaking down through the neckline last year, the S&P 500 has enjoyed a nice run from 1320 to its current peak of about 1840. The $127 neckline area for the T-note will continue to serve as significant overhead resistance, but now so too will the breached multi-year rising trend line residing at about $126.

Such a bearish longer-term chart for the T-note bodes well for equities. However, in the chart above I would point out the COT data plotted in the lower inset. Commercial hedgers, typically the smarter money, are currently very long the UST note, attaining their highest level of long exposure in years. In the past, when their exposure has reached elevated levels (beyond 200K, green horizontal line), the UST note has more often than not responded by rallying. If that were to happen in the near future, I would expect equities to stall or retreat in kind.

The homebuilding sector continues to look upbeat

noreply@blogger.com (Unknown) — Mon, 30 Dec 2013 16:05:00 +0000

The homebuilding sector continues to experience a gradual recovery off the historic collapse of 2005-2009. New and existing homes sales have been steadily trending up since 2011, housing inventory has been steadily trending down since 2008, and home prices have been rising since early 2012. For the most part, industry data has been universally heading in the right direction, creating a bullish backdrop for housing equities.

Not surprisingly, home building stocks have indeed responded to the good news with equity prices well above the lows of early 2009.

Source: Stockcharts.com

Whereas much of the industry data bottomed in 2011-2012, the chart above of ITB (iShares US Home Construction ETF) shows equities bottoming at least two years ahead of the oft-quoted industry numbers. Many times on this blog I've written how stocks tend to lead, whether it be commodities, news or economic data. In fact, in early September I wrote about housing stocks climbing higher several months before the low was established for home prices. For what it's worth, since that blog post the ITB is up 14% compared to the S&P 500 rising by 9% in that time.

I'd like to point out a few things in the ITB chart. First, as already mentioned, home builder stocks put in their final lows in 1Q2009, but note in 2011 another significant higher low was established creating what can be regarded as a double-bottom. Encapsulating this double-bottom formation is a larger, more massive cup-with-handle formation -- typically a very reliable bullish pattern. Finally, after spending several months at an elevated level, the MACD pulled back to below zero only to turn up and trigger a recent Buy signal.

In addition to housing data and equities heading north, it's both understandable and encouraging to see lumber likewise enjoying a longer-term recovery.

Lumber prices have steadily risen since the lows of 2009, advancing within a very well-defined, multi-year channel. I would mention that COT interest is shown in the lower inset and despite lumber rallying from 300 to it's current level of about 375, the generally smarter crowd, commercial hedgers, remain conspicuously neutral on the commodity. Note in the past the green line has tended to decline when lumber has rallied, indicating commercial hedgers getting short, and yet that has not occurred with this recent 25% rally inferring that lumber likely has more room to run.

Below is a chart of the Case-Shiller Home Price Index and I thought it would be interesting to view the Index as if it was a stock, including a few indicators.

The Index itself established a double-bottom comprised of early 2009 and the end of 2011. Note the second bottom for the Index was a lower low compared to housing equites (ITB), which made a higher low in mid-2011. As reflected by this Index, home prices have been trending higher for nearly two years.

For the entire history of the Case-Shiller Index, both the MACD and RSI indicators have flashed just two signals, a Sell and a Buy (actually three, both indicators were in Buy mode when the Index was launched). The MACD has tended to be a bit premature in its signals, registering a Sell in 2006 and a Buy in 2009, but in either case it certainly got you on the right side of the more macro trend to follow. The RSI did a better job of timing, crossing down through the 50 level in 2007 (Sell) and rising up through 50 in 2012 (Buy). Granted, with this Index we're dealing with monthly data meaning the sample size of data is limited, but the larger point was to show that home prices remain in a solid uptrend with at least two well-known technical indicators supporting the bullish case.

With Fed tapering on the horizon, it will be interesting to see how housing stocks fare with presumably higher interest rates in store. However, Bernanke made clear that exceptionally low interest rates will continue to be the Fed's goal and policy for the foreseeable future. Regardless, housing equities will almost certainly give us plenty of lead time to act if and when the industry climate changes to more bearish.

Gold bullion vs. gold mining stocks

noreply@blogger.com (Unknown) — Thu, 26 Dec 2013 16:29:00 +0000

It's been several weeks since I last commented on gold and in that time it has dropped about $100 to a level that matches its prior multi-year low established in late June.

$1200 is key support and so far price is more or less holding at this level. The daily chart above displays a well-defined descending triangle formation, which includes a longer-term declining trend line. I would also point out in the lower inset of the chart that commercial hedgers (typically smarter money) are the least bearish they've been since the late-June low, and frankly it's their least bearish bias since pre-2009.

Taking a longer-term view, the following chart shows gold and the Gold Bugs Index (HUI) since 2005:

Source: Stockcharts.com

The HUI is comprised of gold miner equities. As I've discussed here several times in the past concerning crude oil and energy stocks, it's been my experience that equities tend to lead their associated commodity(s) and this tendency likewise holds true for gold and gold mining stocks. Note that whereas gold bullion has returned to a level that approximates the highs in 2009-2010, the HUI has retreated to a level that approximates prior lows set in 2008 and 2005. Clearly as bad as gold bullion has performed since its breakdown earlier this year, it has fared relatively much better than gold stocks. However, if in fact gold equities tend to lead gold bullion, the chart above does not bode well for the precious metal.

For the HUI, I would also point out the massive bearish complex head-and-shoulders formation carved out since late 2009, with a breach in the neckline occurring earlier this year. Note the breakdown in the neckline happened well before the breakdown in gold bullion in April. Also note the parabolic rise in gold bullion, the increasingly arching-upward green trend line, with the first breakdown at the pinnacle in 3Q2011 followed by three attempts to make a new high only to fail (horizontal green line). All during this time in 2011 when gold bullion was going parabolic and topping, gold equities (HUI) were consolidating within a $500-$600 range, ultimately breaking down in 1Q2012 when gold bullion was still holding up quite well.

I wanted to show gold vs. the HUI from 1998-2005, when both were making new lows at the time.

Again, as shown via the blue lines, gold equities tend to lead the metal. Note the HUI peaked well ahead of gold in 1999, bottomed before gold in 2000, led higher in 2003 and peaked before gold in 2004.

What does all of this mean for gold today? As I already mentioned, longer-term, the fact that HUI has reached lows far below gold in relative terms would not appear to be a bullish sign for gold. However, shorter-term the picture looks a bit more promising.

The weekly chart above shows the HUI breaking down in 1Q2012, about a year ahead of the break down in gold (blue lines). Note also that the MACD for HUI was trending downward as the HUI price continued to make minor new highs in 2011 -- a bearish divergence. Interestingly, with the decline in HUI during this past June to date, the MACD has risen creating a bullish divergence. That said it wouldn't be surprising to see gold equities rally from their current very oversold level and in so doing provide an underlying bullish indication for gold bullion.

I would reiterate that although gold could very well hang tough at the current $1200 support level, esp. given the developing bullish MACD divergence in the HUI, the more important point is the longer-term chart for gold remains ugly and there have been better places to play for many months now. Until further notice, gold has been and remains a tactical trading vehicle.

Is the sun setting on solar stocks?

noreply@blogger.com (Unknown) — Tue, 24 Dec 2013 18:01:00 +0000

On June 28th, I wrote about how much I loved the chart of TAN, the Guggenheim Solar ETF. Since that posting, TAN rose by almost 80% to a peak price of near $42 before pulling back to its current level of $34-$35.

Source: Stockcharts.com

With the gain at just under 50%, prudence dictates unloading half the position given the weight of the evidence or the chart's risk/reward skew.

On the negative side, during October and November the ETF made a few attempts at climbing higher than $42 only to fail and give way to its current level, breaking down through the 50-day MA in the process. Price has rallied a bit over the last few days, but the action is weak today and my fear is another shoe could drop. The next area of support is approximately $28, which is where the 200-day MA meets the prior highs established in the summer. I would also add that volume inflated at peak prices ($40-$42) and spiked again when TAN retreated earlier this month -- possible signs of a blow-off top.

However, TAN also has several positives. For one, price continues to be in a longer-term uptrend as evidenced by the 200-day MA. It's also encouraging to see price holding at the intersecting trend lines (blue). In addition, the ETF is one of the better performers on the year, up well over 100%, and vehicles with such stellar returns and inherent price momentum typically don't roll over and abruptly die. Instead, many an investor looks at such near-term price weakness in a longer-term winner as an opportune time to enter, to hopefully get on board for the next leg up. Whether or not that next leg higher materializes is not the point; rather it's psychology and public perception that ultimately is a key reason for why such high-fliers hang in there quite well during corrections. The high longer-term momentum behind TAN bodes well for continued gains given thrust has follow-through effects, but even if October-November was the top for solar stocks in general, there should be time to better assess this matter in the days ahead.

All of that said, I always stress prudence, discipline and risk control first and foremost and since the evidence appears to be mixed, taking some but not all gains appears to be the sensible decision at this point.

Divergences vs. momentum and seasonal tendencies

noreply@blogger.com (Unknown) — Mon, 23 Dec 2013 16:49:00 +0000

Since early last month, I have been pointing out and discussing several developing negative divergences for the stock market. In that time, the S&P 500 has risen, pulled back and with last week's Fed announcement, shot up to attain a new all-time high -- net net, about a 3% gain. Impressive.

A defining characteristic of divergences is they can very often emerge and develop for some time before having their effects materialize. Divergences can also eventually disappear as conditions change and whatever disconnect was in place dissipates, taking with it any implication stemming from the divergence.

Currently, some key negative divergences do remain in effect. One in particular is the percentage of NYSE stocks above their 50-day moving average.

Note in the chart above that the percentage of NYSE stocks above their 50-day MA is just shy of 60%. This figure has improved from the recent low of 45%, but remains well below the 70% threshold (blue line) that typically is reached or surpassed when the S&P 500 registers a new high. This indicator could continue to climb and get to 70+%, however for now it continues to qualify as a negative divergence.

I would mention that some of the bearish divergences that were lingering in place for the last few weeks have in fact disappeared. One that I had identified on December 15 as already showing signs of becoming a near-term bullish divergence was the relative performance of cyclical stocks versus staples.

The CYC:XLP ratio achieved a new high early last week when the S&P 500 was still near its pullback lows of approximately 1780.

In the face of any headwinds associated with persistent bearish divergences are the tailwinds that come with favorable seasonal tendencies coupled with healthy momentum. As I stated last week, we have entered what has historically and consistently been one of the best three-week periods for the stock market. Whether considering a trailing 5-, 10- or 50-year average, mid-December through the first week in January has typically been exceptionally bullish for equities.

As for momentum, I submit the following S&P 500 chart:

The lower insets show the 5-day (weekly) rate of change (ROC), the 21-day (monthly) rate of change and the stochastic (STO), respectively. Recent momentum in the market has been very robust as evidenced by the 5-day ROC and the STO. Whenever price has accelerated at 2+% over five days and the stochastic has lifted higher in near vertical fashion, it indicates well above-average momentum which provides significant thrust to typically drive stocks higher for days or even weeks to come. And it's also important to note that more intermediate-term momentum as depicted by the 21-day ROC is not already stretched or at an extended level, meaning the near-term rally is not occurring within a longer-term potentially peaking or exhausted advance.

In sum, shorter-term momentum has been very strong and is synchronized with more intermediate-term momentum to suggest further gains should ensue. Also supporting the case for a continued rally is the previously mentioned seasonal tailwind. For the time being, worrisome implications from any bearish divergences will likely take a backseat -- at least until early January.

(Source for all charts: Stockcharts.com)

We're not out of the woods just yet....

noreply@blogger.com (Unknown) — Fri, 20 Dec 2013 16:16:00 +0000

On Wednesday, one of the most anticipated Fed announcements in some time occurred and it was a pleasant surprise to investors. Stocks soared after Bernanke said the Fed would curtail monthly bond buying (QE) to $75 billion, with the $10 billion monthly haircut viewed as tepid and thus bullish for equities. Investors were also relieved to learn for certain that tapering would come in the form of measured, gradual reductions and not in a more abrupt and severe fashion, which could have adversely shocked our still-fragile economy. Bernanke further described economic activity as improving and exhibiting underlying strength, but that the Fed would continue with asset purchases as long as unemployment remained elevated. Finally, it was made clear that current interest rate targets would remain in place even after the rate of unemployment fell below 6.5%, an indication the Fed planned to remain quite dovish despite the imminent changing of the guard with incoming Yellen. All in all, this announcement threaded the needle masterfully.

The S&P 500 Index shot up 1.7% for the day with the mega-cap DJ Industrials surging 1.8%. However, the flatter, more equal-weighted Russell 2000 Index rose just 1.3% on Wednesday, noticeably lagging behind its larger-cap counterparts. Given the bullish firepower that came with the Fed statement, I would've expected to see the generally higher beta small-cap stocks surpass the performance of larger-caps, especially since small-caps tend to have a higher sensitivity to the domestic economy. But such relative price action was not to be.

Source: Stockcharts.com

The upper-most chart above shows the DJ Industrials decisively breaking out of a flag formation, the middle chart shows the S&P 500 trying to break out of what appears to be a broadening wedge formation, and the bottom chart displays the Russell 2000 having yet to make a new high. None of these charts look overly concerning or bearish per se, but it goes without saying the near-term outlooks become less bullish as the cap size shrinks. Generally we want to see smaller-caps fully participating in, if not leading, a robust move for equities, serving to confirm underlying strength in the advance. We're obviously not seeing that yet.

With Wednesday's surge, it was encouraging to see a spike in the 10-day moving average of the NYSE up/down volume:

The indicator has risen from -100 to near 50 in a matter of days, a good sign. It stalled a bit yesterday, but it's still early and another spike upward could occur soon. However, if it were to remain under 100, not to mention 50, over the next few days, odds increase that this pop in the market could lack follow through or roll over. Stay tuned.

One significant tailwind for stocks at this point in time is the seasonal calendar. Starting last week, we have entered one of the best three-week periods of the year for equities.

On average, stocks have performed extraordinarily well from mid-December through the first week in January. And in that time, small-caps tend to outperform large-caps.

The charts above showing the Russell 2000 lagging the larger-cap indices are concerning, but if history is any guide I would expect small-caps to soon outdistance their larger-cap brethren. Failing to do so will only raise concerns heading into the new year.

Market Update

noreply@blogger.com (Unknown) — Mon, 16 Dec 2013 04:06:00 +0000

Apologies again for the extended silence on this blog, but I explained my circumstances in a prior post. Thank you for the many supportive emails, I appreciate your kind words and understanding.

Since my last post, the S&P 500 has declined by about -1.7%, pulling back to within earshot of when I became cautious in early November. The daily chart below shows the Index has retreated to an area of meaningful support with a rising trend line residing at about 1765 and the 50-day moving average at just above 1760.

Also note the continued bearish divergence in the MACD versus price (orange lines), but at least the stochastic is now oversold (green circle), suggesting risk of further downward pressure is less likely at this point or odds favor residual erosion being more tempered.

I've been asked, "what will get you more bullish in the near-term?" Longer-term the market (S&P 500) remains in a solid uptrend and we're currently approaching the sweet spot for seasonality, with mid-December through early January typically offering the best returns on average. But as for the short-term, I'd like to see a few things change starting with the MACD turning up and triggering a Buy signal (histogram meaningfully above zero) as well as the stochastic reverting up and getting through 50.

In addition, I would prefer to see small-caps begin to outperform larger-caps:

Since the start of October, the relative performance of the IWM vs. SPY (blue line in chart above) has been trending south. Although the relative return of small-caps registered a higher low more recently, to further indicate improving underlying breadth will require the IWM:SPY ratio to successfully break its down trend, which has yet to occur.

Another indicator that needs to reverse course is the percentage of NYSE stocks above their 50-day moving average:

This indicator has been trending down since mid-October, creating a bearish divergence as the S&P 500 has risen for most of that time. Currently just 45% of NYSE stocks are above their 50-day MA. To get more bullish in the near-term, I would want to see this indicator put in a bottom and get to above 50% minimum.

But the following chart exhibits at least an initial sign that the risk appetite for investors is perhaps ready to reignite:

The relative performance of cyclical stocks to staples (orange line) is one surrogate to measure the risk-on/risk-off bias; when the line is rising, the climate is risk-on and bullish for the market. Since early October, cyclical stocks have more or less been performing in line with staples. However, note that more recently the CYC:XLP relative return line is close to hitting a new high despite the S&P 500 losing ground -- perhaps a bullish divergence in the making.

The key focus for this week: to see if the S&P 500 can successfully hold at or above 1760-1765 support. I will be traveling tomorrow, but I promise to return with an update by mid-week.

(Source for all charts: Stockcharts.com)