 |
.... Bullish But Getting Frothy .... Bull Market Broadens with Surge in New Highs .... Finance, Industrials and Consumer Discretionary Lead .... Consumer Staples and Discretionary Lead November .... SPY and QQQ Hit New Highs .... Small-caps Extend Recent Leadership Run .... New High Hat-Tricks for Four Sectors .... XLI, XLF, XLB and XLV Resume Uptrends .... Oil Pulls Back as XLE and XES Bounce .... Treasury Bonds Take a Hit .... Gold Tests Important Support Level .... Dollar Hits Moment-of-truth .... Notes from Art's Charts ChartList .... |
Art's Charts ChartList (updated December 1st)
Long-Term Bullish But Short-Term Frothy
Stocks surged with the S&P 500 SPDR (SPY) advancing over 3% in the last 10 trading days. As the blue vertical lines on the chart show, this marks the sixth time since December that the 10-day Rate-of-Change exceeded 3%. The December occurrences and the June occurrence led to sideways consolidations. SPY advanced another 2% after the first occurrence in mid February and did not start a correction until 9 days later (March 2nd). Predicting a pullback is tricky business, but the market is clearly getting frothy as the advance accelerates.
New highs exploded this week with several sector ETFs and dozens of industry group ETFs hitting new highs. These new highs are long-term bullish because new highs occur in long-term uptrends. Furthermore, the high number of new highs reflects broad strength. New highs, however, are not always actionable. Instead, I consider them more of a statement that confirms the bull market. The actionable price action occurs after short-term pullbacks, which occurred in the first half of November. With the market at new highs and looking frothy, I am in watch mode and waiting for the next setups to emerge.
Bull Market Broadens with Surge in New Highs
Anyone doubting the broadness of the current bull market need only look at the S&P 500 Equal-Weight Index ($SPXEW), which recorded another new high this week. In fact, this "average stock" index advanced throughout 2017 and recorded a string of new highs. Further more, the bull market broadened over the last few weeks as new highs in the S&P Mid-Cap 400 and S&P Small-Cap 600 increased significantly. The chart below shows the high-low pairs for the S&P 500, S&P Mid-Cap 400, S&P Small-Cap 600 and Nasdaq 100. New highs on the S&P 500 exceeded 125 for the third time this year. New highs for the S&P Mid-Cap 400 exceeded 80 (>20%) for the first time this year. New highs for the S&P Small-Cap 600 exceeded 100 (>15%) for the fourth time this year. In fact, notice that new highs in the small-cap arena surged to their highest levels of the year in late September, early October and late November. More small-caps and mid-caps are hitting new highs and this means the bull market is broadening.
Finance, Industrials and Consumer Discretionary Lead
Chartists can plot the High-Low Percent for the nine sectors to identify areas of strength within the stock market. The finance, industrials and consumer discretionary sectors stand out this week because their High-Low Percent indicators hit the highest levels of the year. High-Low Percent for the finance and industrials exceeded +50%, which indicates that more than 50% of the stocks in these sectors hit new highs. Wow! XLY High-Low% ($XLYHLP) exceeded 20% the last three days and these are the highest readings since March 2015.
The blue horizontal lines mark the +10% and -10% levels for High-Low Percent on each chart. A move above +10% shows enough critical mass to turn bullish (green arrows), while a move below -10% is considered bearish (red arrows). According to this indicator, six of the nine sectors have been bullish the entire year. XLE High-Low% ($XLEHLP) turned bullish in mid September. XLP High-Low% ($XLPHLP) and XLY High-Low% ($XLYHLP) were whipsawed the last few months, but both are on bullish signals now.
Consumer Staples and Discretionary Lead November
The next two PerfCharts show the performance for the EW S&P 500 ETF (RSP) and the nine equal-weight sector ETFs. The first chart shows performance from January to October. The EW Consumer Discretionary ETF (RCD) and EW Consumer Staples ETF (RHS) underperformed the first 10 months of the year and were the two most inconsistent sectors (blue and orange).
The next chart shows performance for November and these two sectors are leading the pack, and by a wide margin. Both are up over 7% and the next leading sector is up 4.4% (EW Industrials ETF (RGI)). Also notice that the EW Finance ETF (RYF) is the fourth leading sector with a 4.03% gain this month.
Chartists with a bearish slant can point to relative strength in consumer staples as a negative for the market because it is a defensive sector. Sorry, I don't buy it. Long-term readers know that I take a weight of the evidence approach. There are nine sectors (sans REITs) and the market will rise when 50+1 percent of these sectors are bullish. As noted with the High-Low Percent charts, six of the nine sectors have been on bullish signals the entire year and these six sectors account for around 70% of the S&P 500. No wonder the S&P 500 has been rising all year. Furthermore, the consumer discretionary sector has underperformed since September 2015, but this did not derail the bull market.
SPY and QQQ Hit New Highs
The S&P 500 SPDR (SPY) is up around 10% over the last 72 trading days and at a new high. The steepness of this advance compares to the early November surge when the ETF advanced over 9% in 27 days and the January surge when SPY advanced 7.3% in 40 days. The gray area marks a consolidation and the 50-day SMA, which traders can use as the first support zone to watch on a pullback.
The Nasdaq 100 ETF (QQQ) hit a new high on Tuesday, fell sharply on Wednesday and recovered somewhat on Thursday. Wednesday's decline is just short-term noise and not enough to affect the bigger trend. As the red arrows show, sharp one-day declines are not that unusual during a bull run. The upward pointing arrows mark 1+ percent declines that marked lows and the downward pointing arrows mark 1+ percent arrows that led to short corrective periods, which were largely flat.
Small-caps Extend Recent Leadership Run
Even though the S&P SmallCap iShares (IJR) is still lagging the market on a year-to-date basis, it is leading the market since mid August with a 15% gain. IJR pulled back into November as RSI dipped into oversold territory and then surged the last two weeks. The broken resistance zone around 75.5 and the 50% retracement mark the first area to watch for a bounce on a pullback.
New High Hat-Tricks for Four Sectors
Several large-cap, equal-weight and small-cap sector ETFs hit new highs this week. Five of the ten sector SPDRs hit new highs and they can be considered the leaders (XLY, XLK, XLF, XLI, XLB). Notice that the first four are the offensive sectors and the fifth is the Materials SPDR. Even more impressive, eight of the nine equal-weight sector ETFs hit new (closing) highs this week. The EW Energy ETF (RYE) was the only hold out. Among the small-caps sector ETFs, seven of the nine hit new highs this week. The SmallCap Energy ETF (PSCE) remains well below its 52-week high and the SmallCap Technology ETF (PSCT) did not exceed its early November high. Despite a minor non-confirmation from the small-cap technology sector, there is clearly broad strength in the small-cap universe. The chart below shows the three industrials sector ETFs hitting new highs this week. Note that this new high hat-trick first occurred in mid September. The consumer discretionary, finance and materials sector ETFs also scored hat-tricks this week as the large-cap, equal-weight and small-cap versions hit new highs this week.
XLI, XLF, XLB and XLV Resume Uptrends
The previous Weekly Market Review & Outlook on November 17th highlighted four sectors in pullback mode after declines of three to four percent. RSI moved into the oversold zone for the Materials SPDR (XLB) and Financials SPDR (XLF), and even dipped below 30 for the Health Care SPDR (XLV) and Industrials SPDR (XLI). Note that all four hit new highs in October and the long-term trends are up. Thus, these short-term pullbacks were viewed as opportunities and these opportunities bore fruit as all four moved higher the last two weeks. XLI broke out of a falling flag pattern, XLF surged off support, XLB followed through on its four-day reversal and XLV broke out on Tuesday.
Oil Pulls Back as XLE and XES Bounce
Oil fell back this week with the Light Crude Continuous Contract ($WTIC) losing around 3%. The bigger trend is still up and this decline is considered a small correction, just like the mid November dip. I do not see a clear support level at this stage so I will just mark support in the 50-52 area for now. The important thing here is that the trend since late June is up and a short-term pullback or oversold reading would present an opportunity.
The Energy SPDR (XLE) and Oil & Gas Equip & Services SPDR (XES) have been out of sync with oil the last three weeks. Note that oil is up around 1% since 8-Nov, XLE is down 1% and XES is down around 4%. XLE and XES did, however, manage a bounce on Thursday and these bounces keep the uptrends alive. The first chart shows XLE testing support in the 66-67 area as RSI dipped into the oversold zone. This test proved successful with a bounce above 69 over the last three days.
The bounce in XES was less impressive, but the ETF managed to hold support in the 15 area with a 2.33% gain on Thursday. We still have two conflicting patterns at work: the potentially bullish inverse head-and-shoulders and the potentially bearish rising wedge. I will err with the bulls as long as the wedge rises and support at 15 holds. A close below 15 would break wedge support and reverse the upswing that began in mid August.
Treasury Bonds Take a Hit
The 7-10 YR T-Bond ETF (IEF) and the 20+ YR T-Bond ETF (TLT) were hit hard over the last two days and broke out of short-term patterns. The unadjusted IEF (_IEF) broke the triangle line to signal a continuation of the September-October decline. Unadjusted TLT (_TLT) broke a wedge line to reverse the bounce that began in late October. Despite this short-term breaks, note that IEF and TLT have pretty much gone nowhere the past year. The green zones mark support extending back to May and a break below these levels would be long-term bearish for Treasury bonds.
The next chart shows the 10-yr T-Yield ($TNX) surging off its breakout zone and support zone the last two days. The 30-yr T-Yield ($TYX) could be forming a higher low as it surged above 28 (2.8%) and broke the wedge line. These two long-term yields are still not quite on the same page and there are two things to watch here. A break below the October low in the 10-yr yield would be bearish and put $TNX on the same page as $TYX. A break above the mid November high (red zone) in the 30-yr yield would be bullish and put $TYX on the same page as $TNX.
Gold Tests Important Support Level
The Gold SPDR (GLD) took a hit as the 20+ YR T-Bond ETF (TLT) bounced and the 10-yr T-Yield ($TNX) fell. Note that gold is positively correlated to TLT and negatively correlated to Treasury yields. GLD is on the verge of a pretty big breakdown as it tests support in the 120 area. A triangle is taking shape after the September decline and a break would signal a continuation of this decline. A move below 120 would also break the lower trend line of the rising channel. It ain't broken until its broken so chartists should watch for a break above 123 to put new life into the rising channel.
Dollar Hits Moment-of-truth
The US Dollar ETF (UUP) is at a moment-of-truth because it retraced 61.8% of the September-October advance with a decline to the 24.1 area. If the greenback did indeed reverse its downtrend with the inverse head-and-shoulders breakout, then I would expect this short-term pullback to end soon. A breakout at 24.4 would provide the first sign of an upturn. Note that the two-day surge in the 10-yr yield caused the spread between the US 10-yr Yield and German 10-yr Yield to widen further. The middle window shows this spread moving to its highest level since April. This is positive for the Dollar and negative for the Euro.
Notes from Art's Charts ChartList
- The Home Construction iShares (ITB) is up around 30% since mid August.
- SKYY (cloud computing), HACK (cyber security), IGN (networking), FDN (internet) and IGV (software) hit new highs this past week.
- The Broker-Dealer iShares (IAI) broke out of its consolidation on 20-Nov and hit new highs this week.
- The Insurance SPDR (KIE) broke out of a flag pattern and hit a new high this week.
- The Regional Bank SPDR (KRE) surged to a new high this week.
- The iShares Aerospace & Defense ETF (ITA) became oversold in mid November and then moved to a new high this week.
- The Airline ETF (JETS) extended on its breakout with a surge above the early October high.
- The Transport iShares (IYT) extended on its oversold bounce with a new high this week. This also triggered a Dow Theory bullish confirmation.
- The Biotech iShares (IBB) is attempting a bounce off support after becoming oversold.
- The Biotech SPDR (XBI) formed a higher low with a four-day reversal and turned up on Thursday.
- The HealthCare Providers ETF (IHF) broke flag resistance and surged to a new high.
- The Copper Miners ETF (COPX) fell the last six weeks, but this is still considered a pullback within a bigger uptrend. JJC failed to hold its wedge breakout.
- The Gold Miners ETF (GDX) broke rising wedge support with a sharp decline the last three days. SLV broke down this week.
******************************************************
ETF Master ChartPack - 300+ ETFs organized in a Master ChartList and in individual groups.
Follow me on Twitter @arthurhill - Keep up with my 140 character commentaries.
****************************************
Thanks for tuning in and have a good day!
--Arthur Hill CMT
Plan your Trade and Trade your Plan
*****************************************
