Trend Check with Tushar Chande

Small Caps and Technology Lead as Broad Market Builds Support

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The market's internals have improved since the double bottom and small cap and technology stocks are comfortably ahead of the large stock indexes on a YTD basis (see Figure 1).  This is bullish for the market as a whole, even as indexes pause to build support (see Figure 2).  The underlying trend picture has improved on an index basis (see Figure 3) and capitalization basis (see Figure 4).  The dollar is strong, along with Consumer Discretionary (XLY) and Technology (XLK) (see Figure 5).  Commodities and disk drive makers are the strongest industry groups (see Figure 6).  For easy reference, I show the strongest commodity ETFs (see Figure 7). US 10-year yields are testing their uptrend since last Fall, and any break of the trend line will have implications for the dollar, small stocks and bond clones (see Figure 8).  The large caps stocks in the $SPX have to breakout above the 2750 level in the short-term to resume their uptrend (see Figure 9).

 

Chart 1: The YTD gains have pushed small cap stocks and technology stocks well ahead of their large and mega cap cousins.


 

Chart 2: The very broad-based NY Composite index has hit resistance and is consolidating quietly in a narrow range building support.  A break above 13,000 will be bullish.

 

Chart 3: The indexes have stabilized, and are trending higher on the short- and medium-term.  They are mixed on the intermediate- to long-term.  The time step increases from 25 to 200 days, doubling at each step from top to bottom.  The number of stocks (breadth of index) increases from left to right,  from 30 to over 2000 stocks.

Chart 4: The capitalization weighted Vanguard ETFs show a similar improvement as in Figure 3 above.  The short-term (ST) and medium-term (MT) trends are bullish across all market caps.  Small cap stocks are strong across the board, consistent with their performance in Figure 1.  At longer time frames, large cap and mega cap stocks still need technical improvement, with large cap value stocks being the weakest cap sector at the moment.

Chart 5: The dollar (UUP) is strong, along with Consumer Discretionary (XLY) and Technology (XLK).  Consumer staples are the weakest.  This means the market is in more of a risk-on mode, as is also shown by the strength in small cap stocks (via Figure 1).

Chart 6: The major industry groups are ranked by their absolute trend strength.  Transportation, Disk drive makers and commodities lead the pack.

 

Chart 7: Here are key commodity ETFs ranked by their Chande Trend Meter or absolute strength, to provide further detail on the $BCOM strength from Figure 6 above.

 

Chart 8: The US 10-year Treasury yields have backed off their recent highs, and are testing key trend lines from last Fall.  Any break of the trend lines would affect the dollar and small caps in particular, along with bond clones.

 

Chart 9: Large cap stocks, measured by the $SPX are consolidating below the 2740 level, and break out is needed to push towards 2800.  However, headline risk via geopolitical uncertainties have slowed their ascent.

 

Tushar Chande
About the author: , PhD, MBA, is the inventor behind an impressive collection of technical indicators, including the Aroon and Stochastic RSI. He has written several books, holds both a PhD in Engineering and an MBA in Finance, and has over two decades of experience trading the financial markets. Follow Tushar in this blog as he highlights his new "Trend Meter" indicator and shares his analysis of current market conditions. Learn More
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