- Bonds reach critical overhead resistance ahead of jobs report
- Market environment weakens over short- and medium-term
- Top-trending Vanguard ETFs rankings are consistent with strength in bonds
- Top-trending S&P 500 stocks are led by McDonald's (MCD)
Bonds Reach Critical Overhead Resistance
Bonds have rallied into critical overhead resistance ahead of the jobs report (see Chart 1). Oddly, the overall economy has been firm, with the third revision of 2016Q4 GDP now at 2.1 percent, and the Atlanta Fed GDPNow at 1.2 percent for the first quarter of 2017. The February ADP employment report estimated that private sector employment increased by 298,000 and the Chicago Fed National Activity Index also ticked up in February. Thus, bonds have rallied in the face of firmer data, but with increasing uncertainty whether fiscal stimulus from Washington will arrive any time soon. Thus, the upcoming jobs report might provide the impulse for the next move in bonds.
Chart 1: BND - Vanguard Total Market ETF
Chart 1: The CTM shows the highly diversified BND ETF trending as it reaches overhead resistance from 81.25-81.50. The jobs report should provide the impulse for the next big move.
Market Environment Weakens In the Short-term
The NYSE composite turned negative in the short-term in our Trend Check Carpet for today. Focusing on just the Russell-1000 stocks and applying the trend-following models to its components and rolling up the data helps us categorize the current market environment into a binary bullish/bearish sorting across different time frames (see Chart 2). The market environment is mixed: bearish in the short- and medium-term, and bullish in the intermediate-to-long term. This is consistent with other blogs on StockCharts.com.
Chart 2: The underlying market environment for the Russell 1000 universe
Chart 2: Applying our trend-following models to the Russell-1000 universe allows us to compress the data into a market environment. The market environment is negative in the short- and medium-term. It is barely positive or bullish in the intermediate-term, but comfortably bullish over the long-term.
Top (and Bottom) Trending Vanguard ETFs
We use the Stock Charts Scan Engine to apply the Chande Trend Meter to the universe of Vanguard ETFs. The top trending Vanguard ETFs (see Chart 3) are related to the rally in bonds. Clearly, the rally in bonds and the weakness in the trading environment noted in Chart 2 had driven bond funds and defensive equity funds to the top of trend strength rankings. Conversely, the bottom of the trend strength ranks for Vanguard ETFs (see Chart 4) features small cap stocks, or funds heavy with financials.
Chart 3: The Best-Trending Vanguard ETFs Ranked by Chande Trend Meter
Chart 3: The top trending Vanguard ETFs are bond related or have defensive equities.
Chart 4: The Worst-Trending Vanguard ETFs
Chart 4: The bottom of the Vanguard trend strength rankings have small cap stocks and funds with large exposure to Financials. Value players, take note.
Top Trending S&P 500 Stocks
We run the Scan Engine using the Chande Trend Meter to identify the best trending stocks in the S&P 5oo universe (see Chart 5). The RRG chart for the group (see Chart 6) shows long green tails, and offers additional support for the CTM analytical process.
Chart 5: Top-Trending Stocks in the S&P 500 Universe
Chart 5: McDonald's, certainly a defensive stock, is the best trending stock in the S&P 500 universe, but the stocks in this table are from many sub-sectors within the index. The code for the scan engine is shown at the top of the table.
Chart 6: The RRG Chart for Stocks in Chart 5 Above
Chart 6: We use the stocks in Chart 5 to drive this RRG chart, which shows most of top trending stocks have green tails as they gather strength relative to the market.
The next jobs report could provide an impulse to the bond market as it approaches overhead resistance. As the bond market resolves its future direction, equities will adjust to accommodate fund flows and resolve the uncertainty in the market environment.