Breadth For The 9 S&P 500 Sectors

Below are the charts showing price (most charts are price only and not dividend adjusted outside of $XLF, which is divided-adjusted) as well as the sector’s respective Advance-Decline Line. The Advance-Decline Line is one of the most commonly used tools to measure the breadth, which is just a fancy way of saying participation, within a market. A-D Lines simply measure the cumulative number of underlying stocks that are rising or falling. When a sector is hitting new highs, ideally you want its breadth measurement to also be in a strong up trend and hitting new highs. It’s when these two diverge that we see a warning sign that the trend may be changing as the level of participation by individual stocks is not showing strong support.

Health Care
The SPDR Health Care ETF ($XLV) is currently trading in a consolidation pattern with resistance around $71.50 and support of a rising trend line connecting the prior higher lows. The A-D Line for Health Care is near a new high and has shown a solid level of support by the underlying health care stocks.

Consumer Staples
$XLP has been in a down trend since its mid-2016 peak, however price has recently broken above the declining trend line as buyers have re-entered the market for consumer staple stocks. The A-D Line for $XLP has been showing a greater sign of strength having risen back to its prior high and is ready to potentially breakout.

The utilities sector ($XLU) has been improving since November but still well off its mid-2016 high. Breadth has maintained its up trend for $XLU, not putting in any lower lows like price has over the last 6 months.

The materials sector has been in an up trend since its early-2016 low and is currently testing a trend line off its intermediate low from November. $XLB’s A-D Line test its prior high but was unable to break out like price had last month.

Consumer Discretionary
$XLY has been setting new highs after putting in an intermediate low in November. However, its Advance-Decline Line has not been able to breakout quite yet – still sitting under its prior August high.

$XLE had a strong 2016 after declining for several years. However, it’s A-D Line has not been seeing the same level of strength, creating a bearish divergence since for the last several months. While the sector has been rising, it appear many individual energy stocks have not been as lucky.

Financials have been one of the strongest sectors since the November U.S. election. Price has been attempting to set a new high and the sector’s A-D Line has been support of that attempt, remaining strong and confirming price’s advance.

Similar to $XLF, Industrials have been quite strong since the November election with price hitting new 52-week highs. $XLI’s A-D Line has continued to confirm the moves made in price.

Finally, the last of the S&P sectors and one of the strongest of the group. Technology has continue its up trend and practice of hitting fresh new highs. Fortunately, the A-D Line has continued in its up trend as well. While the A-D Line hasn’t quite broken out like $XLK has most recently, it is very close to doing so.

Update: While Real Estate has been added as a sector, I unfortunately am unable to find an advance-decline line for it, so it has to be left out of this post at this time.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Sector Breadth Confirms Broad Equity Strength

Want to find something bearish on the market? It’s not hard to throw a rock and find a piece of pessimistic data or commentary that will feed an equity bears appetite. I know my personal bias is to lean more cautious when evaluating the markets, but when the data that I rely on is telling me something different I must respect what its showing. That brings me the market’s breadth, specifically the Advance-Decline Line, which has confirmed the recent strength in U.S. equities (here and here).

We can take this breadth analysis a step further by looking at the individual sectors, and seeing if the strength in the broad market’s breadth is relying heavily on just a few sectors or if strength is stretched across the entire market. Below I have listed the nine S&P sectors using price only data (not adjusting for dividends) and their respective Advance-Decline Lines. The Advance-Decline Line simply adds and subtracts the number of stocks going up and down in a cumulative total. If more stocks are rising, the line will rise and vice versa when more stocks are declining. I use this type of indicator to understand if there’s support for an underlying price movement. If a market or ETF breaks out, I prefer to see broad participation by the underlying stocks.

While the sector itself is still nearly 8% off its high, its respective Advance-Decline (A-D) Line is already nearly back to its prior high.Materials

While the Energy sector ($XLE) is still in a down trend of lower highs and lower lows, it’s breadth has improved somewhat as it advances with price to challenge its prior high.Energy

Financials ($XLF) have been one of the worst performing sectors YTD, largely attributed to the declining yield curve. However, when looking at the performance of the individual financial names, the $XLF A-D Line is already at a new

When taking into account dividends, $XLI is already at a new high but when looking at just price it still sits a few cents under its 2015 peak. But once again, the sector’s breadth measurement has already set a new high. industrial

Tech ($XLK) is right at its 2016 high and is just itching to breakout and so far it has the full support of its A-D Line as it broke its April ’16 high back in June.
technologyConsumer Staples
$XLP has been in a clear up trend as it makes new highs in price for the bulk of the last year. What about its Advance-Decline Line? Yep, right there with it as it marches higher.
consumer staples

Utilities ($XLU) has been one of the stronger performing sectors YTD, clearing its 2015 high back in May. It’s A-D Line has created almost a straight line higher as individual utility names retain their up trends.utilities

Health Care
The Health Care ($XLV) sector still sits below its high but has recently broken above a level of resistance around $73. The A-D Line for the sector has been leading price higher, having already made a new care
Consumer Discretionary
The Consumer Disc. ($XLY) sector is just under its prior high but its breadth has already broken out.consumer disc

As you can see, from a breadth perspective using the sector’s individual Advance-Decline Lines, the market appears to be much healthier than what the macro economists would lead you to believe. I understand profit margins are contracting, margin debt is high, Europe is falling apart but there is a difference between economies and markets, and we’re seeing a clear separation when looking at the major nine S&P sectors and their respective breadth indicators.

While it’s possible we see the market digest these gains and see some type of back-filling, it’s hard to argue that the current up trend is anything but strong based on the underlying breadth strength in the S&P sectors.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Financial Sector Continues to Weaken

For the bulk of 2014 the Financials Sector ($XLF) has been one of the worst performers. There have been some interesting developments on the chart for this sector, and that’s what I want to take a look at today.

First up is a chart of $XLF, its Volume Advance-Decline Line and the Percentage of Financial Stocks Above Their 50-Day Moving Average. These two breadth indicators can help us understand the ‘health’ of the financial sector by seeing how the underlying stocks of the sector are performing.

As we can see with the Volume Advance-Decline Line, while price has been going higher, this breadth indicator has been essentially flat as it hasn’t made a fresh high since March. As price keeps running into resistance at $23 the A-D line has begun to slightly weaken but has yet to make a lower low.

Meanwhile, the number of Financial Sector stocks that are above their respective 50-EMA has been dropping over the last couple of weeks, creating a negative divergence with price. This is a sign that each time $XLF has hit $23, fewer stocks in this sector have been able to stay above their intermediate-term Moving Average.

Based on these two breadth indicators, it does not appear things look overly bullish based on the internals of the Financial Sector.


Next lets take a look at momentum and the relative performance of $XLF vs. the S&P 500 ($SPY). On the top panel of the chart below we have the Relative Strength Index (RSI). Since June the RSI indicator has been making a series of lower highs as it creates a negative divergence. Even though price has been rising/consolidating, momentum has been weakening. Currently RSI is at the 50 level which has acted as support during previous declines. If momentum weakens and creates another lower low then we may begin seeing $XLF decline as well.

Looking at the ratio between $XLF and $SPY in the bottom panel of the chart we can see the strong under-performance out of the financial sector so far this year. However, things have begun to flatten as the sector starts to perform more in-line with the overall equity market. I’ll be watching to see if the ratio between these two can hold above support or if Financials continue to decline relative to the S&P.


Looking at the latest Relative Rotation Graph (shown below) we can see that $XLF has been attempting to strengthen as it moves from “Lagging” to “Improving”. The RRG acts as another way to look at sectors, assets, etc. in their relative performance with an Index.


Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Technical Market Outlook 4/14/2014

Selling continued last week with the Nasdaq taking the brunt of the damage being off 3.10%, the S&P 500 down 2.65%, and the Dow down 2.35%. While the selling continued into the final hours on Friday, it appears the selling was strongest on Thursday, where we saw a larger share of volume and issues declining compared to Friday. We closed out the week with the S&P 500 under its lower Bollinger Band. We saw this occur four times in January before the buyers stepped back in and took the equity index higher.  At the end of trading on Friday we had six of the nine S&P sectors trading under their 50-day Moving Averages, at the January low all but utilities were under their respective 50-day MA.

Equity Trend

With last week’s selling we saw the S&P 500 break through the level of support I highlighted last Monday as well as its 100-day Moving Average. We are still 15 points away from the up trend that’s kept many traders bullish for the last five months. If we see the S&P continue to fall, I’ll be watching this trend line as the next level of potential support.


Volatility Backwardation

On Friday I tweeted out a chart of the $VIX futures curve and mentioned that April prices were now trading at a premium to May and June, which puts the $VIX into backwardation. This typically happens when option traders become more fearful of short-term volatility than longer-term price swings and has been a fairly good indicator of short-term bottoms in the equity market. Below is a chart of the ratio between the one-month $VIX and the 3-month $VIX in histogram form. When a bar breaks above 1.0 we know that the 1-month is trading above the 3-month (i.e. backwardation).

BackwardationS&P SKEW

Sticking with our fear/risk theme, I noticed an interesting development in the S&P SKEW index. SKEW attempts to measure the ‘tail risk’ within the options market. As the chart below shows, we’ve seen spikes in SKEW prior to previous short-term declines in the S&P ($SPX). For instance we saw a break of 135 prior to the drop in 2012 and more recently we saw SKEW begin to rise again over 135 in December, January, and February. However, we did not see SKEW rise prior to or during the most recent bout of equity weakness. It does not seem that option traders felt this was going to be a 2+ standard deviation event – we’ll see if they were right.

SKEWEquity Breadth

The short-term up trend I’ve been discussing in the Advance-Decline Line has now been broken. While the S&P is under its March low, the A-D Line is still above its March low when looking at all NYSE issues. Although when we focus on just NYSE common stock, it has broken through its respective March low – confirming the weakness in the overall equity market.

equity breadthEquity Momentum

With respect to momentum, we are at an important juncture for the Relative Strength Index. For the duration of the 2013 and start of 2014 up trend the RSI indicator has held above the 35 level, which is the lower end of the bullish range for this momentum indicator. With selling on Friday the RSI is now at 38, just a few points above this critical level of support.

We had a momentum break support in January before buyers rushed back in and took stocks higher but did not push the RSI over 70, this was the first chink the bulls armor. If we see another break under 35, after the Relative Strength Index was unable to get into ‘overbought’ status then we may see the creation of a bearish range as the current short-term correction develops into something more serious.


Crude Oil

With oil being in its historically bullish seasonality time period, it is also testing its falling trend line resistance. In March we saw oil drop and test its 100-day Moving Average, creating the lower end of a symmetrical triangle pattern. If price of crude oil can break this trend line resistance then we’ll also need to quickly see a break of the previous short-term high around $105.

Crude Oil

60-Minute S&P 500

In last week’s Technical Market Outlook I discussed the rising trend line off the February and March lows, which is where we had finished up trading two weeks ago. This level eventually broke and support became resistance when buyers attempted to regain control last Wednesday. This sent prices lower and the Relative Strength Index once again sits in ‘oversold’ territory as sellers overwhelmed buyers. We now have a lower-high as a down trend on the 60-minute chart is created. If we see buyers step back in this week then this trend line and the 50-1hr MA will likely be important levels to overcome.

60minLast Week’s Sector Performance

Utilities ($XLU) continued to lead last week with traders seeking shelter in the ‘risk off’ sectors of $XLU and consumer staples ($XLP). Interesting enough, health care ($XLV) was the second worst performer last week, largely due to its near 20% biotech weighting. Finally, financials ($XLF) was the worst relative performance sector last week.

Week Sector

Year-to-Date Sector Performance

I could pretty much copy and paste this portion of the Technical Market Outlook since it doesn’t seem to be changing very much this year. Utilities ($XLU) continue to lead while health care ($XLV) is still the second strongest, it’s lost much of its gain as biotech pulls it lower. Just three sectors are under-performing the S&P 500 YTD, with consumer discretionary (cyclicals) ($XLY) leading the pack of losers.

YTD Sector

Major Events This Week

This week we get another set of inflation data with the CPI report on Tuesday. Import and export data out of China has been weakening so it’ll be interesting to see what the Industrial Production numbers look like on Wednesday and if U.S. manufacturers are seeing any of the ripples from overseas.

Monday: Retail Sales
Tuesday: Consumer Price Index
Wednesday: Housing Starts and Industrial Production
Thursday: Jobless Claims
Friday: Market is closed


Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Technical Market Outlook 3/7/2014

I hope everyone had a good week last week, I apologize for my lack of activity on the blog or on Twitter/StockTwits. I was in NYC for the Market Technician Association annual symposium. This was the first year I’ve attended the event and it was well worth the trip. We heard some excellent speakers from Ned Davis and Greg Morris to John Murphy and Ralph Acampora. JC Parets wrote a great post yesterday with some highlights from the event, definitely worth a read. It was awesome meeting many of you that I’ve connected with through Twitter and my blog as well as lots new traders from all over the world that came to the conference.

While I was away I did not get to spend nearly as much time watching the markets as I would have liked. Reviewing the price movement, we had some increased selling on Friday as the S&P 500 ($SPX) broke back through the previous March high. Equity bulls would have preferred to see that level hold as support. While it ‘felt’ like a panic selling as we cut through would-be support, we only saw roughly 70% of volume come from selling and 60% of issues trade down. Typically we see these numbers hit 80% or 90% during panic selling.

Equity Trend

The up trend is still intact for the S&P 500 ($SPX). If the sell-off that began on Friday continues I’ll be watching the previous low set in March to hold as potential support since the March high has already failed. We closed out trading last week with price just a few cents under the 20-day Moving Average, which I believe is positive for bulls as some would argue that the MA was not ‘fully’ violated just yet.

equity trendEquity Breadth

A few weeks ago I showed a chart of the number of New Highs minus New Lows totaled for the week. I mentioned that while the Advance-Decline Line was still showing strength, this indicator, that looks at the number of New Highs, was making lower lows. With the new all-time high in price last week for the S&P 500, we yet again saw another new low in the net number of New Highs minus New Lows (not shown).

As the chart below shows, the Advance-Decline Line held up well during heavy selling on Friday. This measure of market breadth is still above its short-term trend line and well above its long-term trend. The Percentage of Stocks Above Their 200-day Moving Average confirmed the higher high last week and stayed above its level of support on Friday. From a breadth standpoint, things still appear positive with the Advance-Decline Line still above its March high.

equity breadthEquity Momentum

Once again we saw another lower high in the developing divergence in the Relative Strength Index (RSI). In my opinion, momentum is currently the biggest concern for the uptrend in the equity market. While we still have fairly strong breadth as mentioned above, momentum has continued to weaken. On any further selling I’ll be watching the 49 level as support for the RSI indicator as marked by the dotted blue line. The MACD momentum indicator is also still showing a negative divergence, although it was able to make it above its March high which is slightly positive for stocks.

equity momentumBonds

It’s been a few weeks since I’ve discussed the bond chart, specifically the iShares 20+ Year Treasury ETF ($TLT). Price continues to trade in a range between $109 and $105. We did see a false breakout two weeks ago, but $TLT quickly fell back into its range. Looking at momentum and volume we are getting two different messages. With the Relative Strength Index (RSI), a negative divergence has continued to develop as it makes lower highs.

However, the On Balance Volume indicator, which adds up the number of shares traded on up days and subtracts volume on down days to measure buying and selling pressure, appears to be showing a bias towards buyers as more shares appear to be traded on positive days. The 50-day Moving Average continues to act as support during short-term sell-offs and since its current rising, is a positive area of support for those bullish on bonds.

TLT60-Minute S&P 500

The 60-minute chart for the S&P 500 ($SPX) has been giving us a lot of clues during the choppiness of trading these past few weeks. I’ve been watching the channel on this short-term chart with resistance at the March highs around 1880 and support at the March lows near 1840.We broke above resistance momentarily and were unable to turn resistance into support last Friday.

As the equity market challenged and broke through the previous high we saw a small negative divergence of lower highs created on the Relative Strength Index. This signaled that buyers may not have been as strong as many would have hoped. While the MACD was able to break its negative trend, Friday’s selling pushed it back under as sellers took over. One positive note is the trend line off the February and March lows. Selling on Friday was halted when this trend line as shown on the chart was hit and I’ll be watching this week if this trend line can hold up and buyers take back control of the S&P. If the trend line breaks then we’ll likely see a test of the March low which will act as a line in the sand before the start of a short-term down trend.

60 min spxLast Week’s Sector Performance

The energy sector ($XLE) was the strongest relative performer last week. I discussed the chart for energy in March 24th’s Weekly Technical Outlook. Utilities ($XLU), consumer staples ($XLP), and industrials ($XLI) were also positive last week. Consumer cyclicals ($XLY) and the financial sector ($XLF) were the worst performers.

Weekly sectorYear-to-Date Sector Performance

Not much as changed YTD as it pertains to sector performance. Utilities ($XLU) and health care ($XLV) continue to lead for 2014. With consumer cyclicals ($XLY) the worst performing sector for the year.

YTD Sector perfMajor Events This Week

This is a pretty light week for economic data with the FOMC minutes likely to garner the most attention. Commentators will likely be interested in reading further detail about the Fed dismissing unemployment as a critical trigger for interest rate policy.

Monday: Consumer Credit
Tuesday: JOLTS Report
Wednesday: FOMC Minutes
Thursday: Jobless Claims
Friday: Producer Price Index


Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.