A Week in Review: Record Volume, Yield Curve, Sectors, Japan, Cash Allocation, & Seasonality 12/4/2017

While Friday made for some interesting trading, the major indices overall remain in up trends and above their short- and intermediate-trend moving average and trend lines. The S&P 500 finished the week up 1.53%, the Dow was up 2.86%, Small caps were up 1.37%, International equities were down 0.37% and Bitcoin saw 12% growth. Here are the charts and news stories I felt were noteworthy from the last week….

Nasdaq Commercial Traders
Typically Commercial Traders are dip-buyers when they’ve previously been this close to holding a net-long position in Nasdaq futures and options. However, over the last several months the Commercial Trader net-position has been inching higher and is now very close to becoming long while Large Traders (funds) are on the other side of that trade, close to becoming net-short.

U.S. Dollar Commercial Traders
What has been a fairly boring chart since the summer as traders have not been moving their net-positions very much in the dollar, until now. As of last week, Commercial traders have now squeaked their position to be net-long, which is some we don’t see happen very often. They have not been long USD since 2013, just before we saw a nice up-trend in the local currency. Before that (not shown on chart) we saw them become net-long in 2012, buying the weakness in the dollar as it got under 80.

Record VIX Option Volume
The CBOE tweeted out this chart on Friday, showing the record number of options traded on the VIX, reaching 3.1 million contracts which exceeds the prior record of 2.6 million contracts traded in a single day that was set earlier this year in September.

Correlation Between Volatility & Equities
Dana Lyons, who constantly produces excellent content on his blog and on Twitter, recently posted this chart on a topic that received a great deal of attention last week – the recent rise in correlation between the $VIX and the S&P 500. In fact, on Friday, as Lyons’ notes, the short-term Volatility Index, which measures expected volatility over a 9-day period compared to the more popular VIX which looks at 30-day vol, rose by the largest percentage amount while the S&P was also up nearly a full percent. As you can see on the chart, short-term volatility is rarely positive on days equities see that level of strength, making Friday’s action quite unique.

Asset Performance When Yield Curve is Flattening
This chart comes from Morgan Stanley and was shared by Dreihaus. There has been a lot of discussion around the impact and implications of the U.S. Treasury yield curve flattening.Based on the research of MS, some of the best relative performance returns during a late-cycle Treasury curve flatting comes from the energy sector as well as financials. Meanwhile, Telecom, Consumer Discretionary have historically under-performed the broader market during late-cycle periods.

Using Volatility and the Yield Curve to Assess the Economy
Speaking of both volatility and the yield curve, the CME put out a really interesting study, looking at the relationship of the long-term trends of both the VIX and the Treasury yield curve as they relate to various stages of economic growth/contraction.What looks similar to a Relative Rotation Graph, the CME compares to the two-year moving averages of the Volatility Index and the yield curve and how they move counter-clockwise; “The cycle has four phases.  As with any circular motion, where to begin is arbitrary, so we will begin at the bottom of the economic cycle and work our way to mid-stage expansion.” The four phases are defined by the CME as:

  1. Recession: yield curve moves from flat to steep (upward slope), equity volatility is relatively high.

  2. Early-stage recovery: yield curve remains steep, equity volatility begins to fall.

  3. Mid-stage expansion: the yield curve starts to flatten, equity volatility remains low.

  4. Late-stage expansion: yield curve becomes even flatter, equity volatility soars as fears of recession dominate investor behavior.

You can see the prior two growth/contraction periods in the U.S. economy move through the above mentioned four stages using the VIX and the yield curve in the two smaller charts below. The current cycle is shown in the third chart. The CME comments they interrupt the data for today’s market as being in “a phase that closely resembles the mid-expansion phases seen during the mid-1990s (1994-96) and the mid-2000s (2005-06).  As already noted, the Fed has commenced removing monetary accommodation.  Yield curves are flattening.  VIX remains unperturbed at extraordinarily low levels. This phase may persist another year or so as the yield curve continues to flatten and the VIX, most likely, remains low for a while longer.”


Japan’s Chart Doesn’t Look Great for the Bulls
Looking at the iShares Japan ETF ($EWJ) we can see a potential double top on the daly chart. The re-test of $50 also has come with a lower-high in momentum via the Relative Strength Index (RSI) along with a lower-high in relative performance with the S&P 500 ($SPY). If EWJ continues to move lower I’ll be looking to see we get a test of its 50-day Moving Average which acted as support earlier this year in July and August.

Average Momentum for the S&P 500 Stocks
After experiencing a slight bearish divergence in the average Relative Strength index reading for the stocks in the S&P 500, the composite reading has now moved to a recent new multi-month high, the highest average momentum reading since early 2016.

Sector Relative Rotation Graph
After several weeks of improvement in the energy sector’s relative rotation it’s taken a turn lower, although still in the ‘leading’ category. While the tech sector saw some weakness in several large momentum names, the smoothing of the trend in relative rotation saw an uptick on the RRG for $XLK, along with positive moves in Staples (XLP), Discretionary (XLY), and Utilities (XLU).

Sector Correlation
The correlation of the ten S&P sectors over the last 20 days shows the highest correlated sectors being health care (XLV), industrials (XLI) and materials (XLB) while REITs (VNQ) and Energy (XLE) have been the lowest correlated sectors over the past four weeks.

Sector Performance
Year-to-date most of the S&p sectors are experiencing positive performance, with just the energy sector still seeing red. Only two sectors (staples and energy) are under-performing the S&P 500 through November with technology and health care seeing the strongest growth so far this year.

Narrow Revenue Streams For The Big Five Tech Companies
Barry Rithotlz posted this chart created by BI which looks at the revenue streams of the major five technology companies. Ritholtz notes that the older companies have the most diversified streams, while they narrow as the age drops for each firm; “Microsoft, the oldest and most mature company has the most diversified revenue stream with office the biggest revenue producer at 28%. It follows from there in age: Apple’s biggest line (iPhones) = 63%, Amazon (retail sales) 72%, then Google (Adverts) 88%, and lastly, Facebook(Adverts) at 97%.”

Cash Allocations Continue To Decline
The allocation to cash in Merrill Lynch client accounts has declined to the lowest level in ten years. The prior low, set in ’07 has now been surpassed with August’s cash allocation falling to 10.4% as shown in this chart via John Mauldin.

Positive Returns Through Thanksgiving Setup for a Solid ‘Best Six Months’
This great table shared by Urban Carmel shows that when the S&P 500 posts gains of at least 7% through Thanksgiving, the following six months has seen a positive return 84% of the time. For 2017, the S&P was up 16%, which should setup the next six months for a positive tailwind.

S&P 500 Track Record for December
Dave Wilson shared this chart as his Bloomberg “chart of the day” on November 23rd from Ari Wald, CMT, which shows since 1928, the S&P 500 has never seen its worst month of the year occur in December.

December Is the Least Volatile Month of the Year
According to Jim Bianco, since 1981 the S&P 500 has been the least volatile in December with an average monthly standard deviation of just 3.49%.

Post-Election Year’s in December Also Have Been Bullish
We can’t discuss market seasonality without also mentioned a great point by Jeff Hirsch of the Stock Trader’s Almanac. Hirsch points out that while December has historically been the best month for the S&P and the second best for the Dow since 1950, when looking at post-election years the month of December has been the fifth best for the Dow, the eight best for the S&P 50 and the fourth best for the Russell 2000.

New Home Sales Continue to Climb Higher
The latest data of new home sales in the U.S. shows the strongest sales growth in ten years. Bloomberg notes, “The report showed the U.S. South region continued to recover from a pair of hurricanes. Purchases in other areas of the country, including a 17.9 percent surge in the Midwest, also climbed. The number of properties sold in which construction hadn’t yet started reached the highest level since January 2007, signaling residential construction will accelerate in coming months.”


Christmas Trees May Be More Expensive This Year
According to the New York Times, “For anyone who might forget, many people in the United States were not feeling particularly festive in 2008. They bought fewer items as the country slid into its deepest downturn since the Depression. Growers responded by cutting down fewer Christmas trees to sell. That left less space to plant replacements and, ultimately, a smaller-than-usual batch of seedlings. Nearly a decade later, Americans are spending freely again, and the firs, spruces and pines that went into the ground during the recession have reached the seven-to-eight-foot height that makes them ideal for holiday living rooms”

Bitcoin Mining Equates to the Energy Consumption of 159 Countries
With the growing popularity (and price) of the cryptocurrency, the energy used to mine the digital coins has risen 30% over the last month. 0.13% of global energy is now taken up by bitcoin miners, and “uses more electricity than 159 individual countries — including more than Ireland or Nigeria” according to a report by CBS News.

Moody’s Will Now Take Into Account Global Warming Risks For Their Ratings
The rating agency recently released a report that detailed how they will begin involving the impact of global warming on city and state’s when rating their bonds. Bloomberg highlights Moody’s note to clients that “it incorporates climate change into its credit ratings for state and local bonds. If cities and states don’t deal with risks from surging seas or intense storms, they are at greater risk of default.”

Hedge Funds Move Into More Illiquid Investments In Order to Stay Competitive
A recent Financial Times article discussed the latest move by several major hedge funds that have been moving into more less-liquid investment markets in order to seek alpha and produce gains after several years of lackluster performance. With less liquidity obvious comes an increase in risk that could have a negative impact on these funds if turbulence moves into these less trafficked markets.


Nike Adopts Augmented Reality To Sell Shoes
It’s always interesting to see how retails adjust to new technology in order to increase sales. Nike is the latest retailer to step up their game, adopting AR in order to sell their latest sneakers as reported by the Wall Street Journal, “We saw kids race towards Washington Square Park, phones in hand, to snatch up Jordan 12s. This was an example of a geo-targeted release, where shoppers have to be in a specific location to purchase a sneaker on the app. Footage showed “shock-drops,” another activation in which a push notification randomly flashed on users’ phones, tipping them off to an unannounced sneaker release.”

Mexican Avocado Police
The city of  Tancitaro in Mexico now has an avocado police force. Via Extra Crispy, “BBC News, the avocado force, who carry guns and wear full body armor, are partially funded by a percentage of avocado producers’ earnings—they all contribute a bit of their profits to ensure the safety of their city.”

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 12/29/2014

Welcome back. I hope everyone had an enjoyable Christmas and was able to spend time with family and friends. While trading was a shortened week, the major indices were able to continue their drift higher.


Of course with the march higher in the S&P 500 ($SPX), the trend remains positive. While we often draw trend lines connecting lows, the chart below shows a trend line connecting the highs over the last year. You’ll notice we are bumping up against this level of potential resistance. We’ll see if traders deem this important based on the price action we see this week.


One of the biggest developments that took place last week was the final confirmation in the Common Stock-Only Advance-Decline Line. I had been discussing the divergence in this measure of breadth for the last several months. I’ve noted that the bulk of the other large-cap Advance-Decline Lines had already confirmed. We also saw the small-cap and mid-cap A-D Lines hit new highs as well. The Percentage of Stocks Above Their 200-day Moving Average while making improvement, remains in an established down trend.


Santa Claus Rally
Many traders have been tweet, writing, and discussing the historical seasonal advance in stocks, dubbed the “Santa Claus Rally.” Ari Wald, who serves as the Head of Technical Analysis at Oppenheimer wrote an article on the subject for The Technical Analyst. Ari turned his focus away from the crowd’s focus of how great Santa is for stocks and looked at what if Santa doesn’t show up. He writes, “However, performance in the next 1 to 2 quarters has tended to be below average when the S&P 500 closes lower during the SCR. For instance, the S&P 500 has averaged a 1.4% loss and a 0.6% loss in the subsequent 3 and 6 months, respectively, following a negative SCR, versus an average 2.8% gain and 5.3% gain, respectively, following a positive SCR.”

So while traders will be disappointed if they don’t get the juiced up gains many are expecting this week. It seems they take out their frustration on stocks during the following couple of months.

santa clauss

While breadth has now confirmed the rally in stocks, momentum continues to show a bearish divergence. The Relative Strength Index ans the MACD indicators remain below their prior highs. This isn’t that surprising since the bulk of the bounce off the December low spanned just a couple of days. It’s tough for indicators like the RSI and MACD to snap back as fast as price as, which is why this current divergence is not a huge concern to me at the moment. However, as I wrote about on Dec. 18th, the longer-term view of momentum still favors the bulls.


Is January Dangerous? 
Dana Lyons, who I’ve mentioned a couple of times on the blog, has continued to produce some great charts and tables. Recently Dana showed this table that goes back to 1900 and marks the number of highs and tops seen in the Dow. You’ll notice that December has seen the fewest short-term (3 month) peaks while January has seen the most short-term and longer-term (12 month) highs going back to 1900. We often hear that October is one of the most ‘dangerous’ months for stocks but Dana’s data shows that it’s actually January that’s seen the most bearish turning points for stocks.

January Dana

Last Week’s Sector Performance
While a shortened week, Utilities ($XLU) remained the best performing sector relative to the S&P 500. Consumer Discretionary ($XLY) which has not had a great year was the second best performing sector followed by Technology ($XLK). Health Care ($XLV), likely lead by biotech, had the worst week, giving reprieve to the Energy Sector ($XLE) for once, which was the second worst performer.

sector week

Year-to-Date Sector Performance
Utilities, Health Care, and Technology remain the best performing sectors relative to the S&P YTD. As oil prices have continued to decline the Energy Sector remains the worst performer.

Sector YTD
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.

Which Sectors Are Leading the Market?

With the increase in volatility over the last several weeks, I think it’s time to check back in on sector relative performance. While the U.S. equity market as a whole has gotten rocked since it’s August/September high, understanding what the underlying sectors are doing and what’s leading can be a great tool to stay in control. Over the last 30 days, the S&P 500 has lost 3.5% of its value, Utilities ($XLU) and Consumer Staples ($XLP) are actually positive and the Energy sector ($XLE) is down over 10%. While the S&P 500 ($SPY) often garners the most attention, we can’t lose focus of the nine S&P sectors that make up the index.

Health Care ($XLV) has been a consistent leader this year, spending the bulk of the last 30 weeks in the ‘Leading’ category of the Relative Rotation Graph (shown below). The Relative Rotation Graph (RRG) plots the sectors using their the trend of their relative performance against the S&P 500 as well as the momentum of that trend. Historically the sectors have moved in a clockwise fashion as they go in and out of favor relative to the index and as the momentum of their relative performance rises and falls as well.

About three weeks ago we saw that the Technology sector ($XLK) began to turn lower but remained in the ‘Leading’ category. Since then, and over the last several weeks, this once leading area of the market has shifted into the ‘Weakening’ category throttled by the decline in the momentum of its relative performance.

It’s also important to note the strength out of Financials ($XLF), and Consumer Staples. In a post on September 29th I highlighted the ratio between $XLP and the S&P 500, which was seeing a bullish divergence in momentum and ultimately led to the defensive sector outpacing the market for the last several weeks. Energy ($XLE) has continued to sink deeper into the depths of the ‘Lagging’ category with the momentum of its under-performance intensifying.

RRG chart

2014 has seen the theme of defensive strength with Utilities, Health Care, and Consumer Staples, leading the way for the bulk of the year. This likely worries equity bulls as traders steer away from the higher beta components in favor of the perceived safer 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.

Weekly Technical Market Outlook 2/17/2014

I hope everyone had a good weekend. With today being President’s Day, we have a shorted trading week with U.S. markets being closed today. It was nice to see the equities move back to the green last week, with the S&P 500 ($SPX) finishing up a little over 2% and small caps ($IWM) up nearly 3%. I’ve decided to add a new ‘section’ to this weekly post, focusing on one specific sector. This week I’ll be taking a look at the tech sector and digging into its daily chart.

Equity Trend

You’ll notice I’ve re-drawn the trend line that we’ve been monitoring since I started writing the Weekly Technical Market Outlook. Previously we had been using a trend line that began at the start of 2013. However, with the bout of weakness we had to kick off 2014 I feel an adjustment needed to be made to better reflect recent price action; so I’ve redrawn the green dotted trend line to connect the June ’13, October ’13, and February ’14 lows.

Last week’s strength pushed the S&P 500 back above its 100-day and 20-day moving averages and got within spitting distance of a new all-time high.

Equity TrendEquity Breadth

During the recent dip in equity markets I noted that the Advance-Decline Line was not reflecting the selling pressure that had taken over the airwaves of major financial networks. This was one of the first potential clues we got that the it may just be a short-lived drop and not the beginning of something more protracted. Well with stocks rallying back near new highs, the Advance-Decline Line has already broken above its January high – a positive sign for equity bulls.

Turning the focus to the Percentage of Stocks Trading Above Their 200-day Moving Averages, this measure of market breadth has broken out of the triangle we’ve previously discussed; and as of Friday is now in a range between 72.5% and 55%. If buyers remain in control, then we’ll likely break out to the upside as more stocks retake their 200-day moving averages. While this measure is still not confirming the price action in the S&P, at this point, breadth continues to favor the bulls.

Equity MomentumEquity Momentum

This chart of momentum for the S&P 500 ($SPX) is what worries me most about the current up trend. In August and November of last year many technicians, myself included, showed concern for the divergences in the Relative Strength Index (RSI) as price headed higher and this measure of momentum refused to confirm. After both instances we saw price continue higher, as trader’s appetite for stocks refused to shown concern for weakening momentum.

Well now once again as the S&P approaches new highs, we will likely have another negative divergence in the RSI indicator. The one note to make here is that this divergence is more pronounced on the daily chart than the previously mentioned ones last year.

If we were to zoom out and look at the weekly chart (not shown), we can see a negative divergence is also developing within momentum there as well. During the current bull market, we’ve seen this lead to varying lengths and severity of corrections – the 2011 drop, as well as the two corrections in 2012. We’ll see if traders continue to beat the drum to the 2013 theme song or if we see a repeat of 2011 and 2012 with prices confirming the bearish tone in the Relative Strength Index. Equity MomentumSector Spotlight – Technology

As I mentioned in earlier, I’m adding a new ‘section’ of the Technical Market Outlook to focus on a specific S&P sector. This week I want to discuss the Technology sector ($XLK). The chart setup may look a little different from what I normally discuss on the blog, so bear with me as I discuss whats being shown. In her book, Technical Analysis for the Trading Professional, Constance Brown discusses using Bollinger Bands around the RSI indicator as another layer of momentum analysis. Brown talks about when the RSI line spends a protracted period outside of the bands and how this can lead to bounces (when under the lower band) if the RSI line comes back within the bands and tests the previous low or sets a new low while still inside the bands. I’ve put a red circle around this happening for $XLK at the end of January and lead to a strong move to a new high.

As I noted for the S&P 500, we are not seeing confirmation in momentum (via the RSI indicator) of the new high in tech, which can be resolved as a matter of price change or time if buyers continue to push this ETF higher, or we could see price turn lower and put in a false break. We’ll see what happens.

In the panel directly under the price chart I’ve included the Advance-Decline Volume line for $XLK. We can see confirmation in this measure of breadth (which takes into account volume compared to the Advance-Decline Line I use in the ‘Breadth’ Section above that just looks at price).

Finally, in the bottom panel we have the relative performance of $XLK compared to the SPY 500 ($SPY). I use a 50-day Moving Average with this ratio to get a better idea of the trend in relative performance. After being in a period of consolidation where $XLK moved with the overall equity market from August until December, for the last two and half months it has shown signs of strength as traders have begun to once again show favor for the technology sector.


60-minute S&P 500

The positive divergence in the MACD and RSI indicators I discussed last week were confirmed as price headed higher and began making higher highs. This week we’ll be watching to see if the previous high at 1850 can be taken out. The Relative Strength Index once again finished the week in ‘overbought’ territory, a sign of strong appetite for stocks. Outside of a major news event I would be surprised if we didn’t at least test 1850 this week. If price consolidates or weakens I’ll be watching the recent low in the RSI as shown by the solid blue line on the chart below.

60 min SP500Last Week’s Sector Performance

The energy sector ($XLE) was able to dethrone utilities ($XLU) as the leader in weekly relative performance last week. Financials, which had previously been showing strength, finished out last week as the worst performing sector.

Weekly SectorYear-to-Date Sector Performance

Taking a look at how the nine S&P sectors have done YTD, utilities ($XLU) continue to lead the pack, followed by health care ($XLV) and technology ($XLK). While energy ($XLE) was the leader for the last five days, its performance was not strong enough to take it out of last place year-to-date.

YTD SectorMajor Events This Week

While this is a shortened trading week, the theme will likely be inflation as we get two major measures on Wednesday and Thursday with PPI and CPI data.

Monday: U.S. Markets Closed
Tuesday: Housing Market Index
Wednesday: Housing Starts and Producer Price Index (PPI)
Thursday: Jobless Claims and Consumer Price Index (CPI)
Friday: Existing Home Sales

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 2/10/2014

This most recent correction, dip or whatever you want to call it fit the pattern we saw during the two drops in 2013. When viewing the S&P 500 ($SPX) on a weekly chart we can see price dip down to the 20-week moving average followed by the next week advancing higher while holding the moving average as support as price eventually heads higher, continuing the predominate trend. This is what we saw take place over the last two weeks, with price holding the 20-week moving average as traders took the price of equities higher. A second highlight last week was the backwardation we were experiencing in volatility ($VIX) corrected itself with the $VIX dropping nearly 30% as traders realized the world did-in-fact not come crashing down.

Equity Trend

The ‘purist’ of the trend following community would view the current price action of the S&P 500 ($SPX) as in a down trend with it having lower lows and lower highs. However, I feel we are still in a trend ‘neutral’ point with Friday’s movement taking us to the first ‘lower high’ at 1800 – potentially putting in a higher high. We closed the week at an interesting point as the S&P tests the trend line (green dotted line) that had acted as support for the bulk of 2013. If this trend line becomes resistance and the 100-day moving average (blue line) is once again threatened then the equity bulls may be in some trouble.

S&P 500 TrendCommodities

While not a big fan of making predictions, in Phil Pearlman’s Yahoo! Finance article in December I said “Typically we see the most hated areas of the market one year rotate back to strength the following year. I’ll be watching to see if this happens for the commodities market in 2014.” While the year is still young, this is exactly what appears to be happening as commodities are leading in relative performance against equities.

Looking at a current chart of the Commodities Tracking Index ETF ($DBC) we are at a potentially make-or-break point. Trading finished out last week butting up against the 100-day moving average, which stopped commodity bulls in their tracks in December. Price is also at the falling trend line off the August and December 2013 highs. If $DBC can break these two levels of resistance and power through the 200-day moving average then we would have ‘open air’ so to speak, with little resistance to stand in the way of price continuing its up trend until we get to the August ’13 high.

CommodityEquity Breadth

In last week’s Technical Market Outlook I said that while equity prices were back at December levels, we were not seeing the same action in the Advance-Decline Line; with this measure of breadth holding up rather well among the selling pressure. The Percentage of Stocks Above Their 200-day Moving Average indicator also was able to break back above its trend line support as more stocks began to move higher.

Equity BreadthEquity Momentum

My favorite measure of momentum, the Relative Strength Index (RSI), was able to hold support last week as it finished out trading testing the 50 level. Neither of the two oscillator momentum indicators (RSI and Money Flow Index) reached ‘oversold’ conditions during selling pressure, which is a bullish sign that bulls are likely still in control. We’ll see if this continues in trading this week.

Equity momentumEmerging Markets

Last week I wrote a post “Early Signs of Bullishness for Emerging Markets” and showed a chart of the relative performance of $EEM against $SPY. Emerging market equities have begun to gain ground against their domestic counterparts which comes at an interesting time….

The chart below is from Morgan Stanley (courtesy of Business Insider) and shows the in and out flows from emerging market funds. Apparently two weeks ago was the last bit of weakness emerging market traders could take, as they sent weekly flows lower by the 5th largest move in history. This is exactly what contrarian traders want to see as it shows a potential sign of blood in the streets.EEM flows60-Minute S&P 500

The short-term view of the S&P 500 ($SPX) gave us an interesting viewpoint last week. First lets look at the price action. We saw selling into the 1740 level, followed by a small bounce before selling headed back to 1740 where price gave a false break of the previous low, with the next candle testing 1740 as buyers began stepping back. This was our first sign that price may begin to head higher. The S&P finished the week testing resistance 1800. Looking at momentum, specifically the MACD indicator (bottom panel), we can see a positive divergence was forming as it put in a higher low while price made a lower low. Finally we have the Relative Strength Index which got pushed above 70 into ‘overbought’ territory – a bullish sign going into trading this week.

60 minLast Week’s Sector Performance

Once again, the utilities sector ($XLU) was the best relative performer last week, followed by health care ($XLV) and materials ($XLB). Consumer staples ($XLP) and technology ($XLK) held up the rear.

Week sector perfYear-to-Date Sector Performance

Not much change has occurred in the YTD sector performance with utilities ($XLU) continuing to lead the pack with health care ($XLV) and technology ($XLK) coming in second and third.

YTD Sector PerfMajor Events This Week

This week is a light week for economic reports. The highlight will likely be Janet Yellen’s first testimony as Fed Chair before Congress.

Monday: None
Tuesday: Janet Yellen testifies before Congress
Wednesday: None
Thursday: Retail Sales and Jobless Claims
Friday: Industrial Production

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.