Quantifying Leaders and Laggards on this Historic Bounce

While the price of an index reflects what is happening on the outside, breadth indicators show us what is happening on the inside, and we all know that inside information can provide an edge. Since we are all not Senators, we must use charts to find that edge

The S&P 500 moved from a 52-week high to a 52-week low with lightening speed over the last three weeks. To capture the sharpness of this decline, I am showing a chart with the 3-week Rate-of-Change in the indicator window.

Support levels and bullish retracement zones are questionable, at best, in bear market environments. Why? Because the path of least resistance is down in a bear market. As such, the odds that a support level holds or a bullish retracement zones leads to a reversal odds greatly reduced

Looking for an indicator to find stocks and ETFs that held up the best last week? Look no further. Today I will show how to use a classic indicator to quantify last week’s decline and rank names by their retracements.

After falling for over a year, the Regional Bank ETF (KRE) finally got its mojo back in the fourth quarter of 2019 and broke out to new highs. The ETF then became overextended in mid December and fell back to the 200-day SMA here in February.

Dow Theory applies the principle of confirmation to confirm primary trends. Charles Dow used the Dow Industrials and Dow Transports to confirm the primary trend for the broader market. The primary trend is up, and confirmed, when the Industrials and Transports both

Amazon is by far the biggest component in the Consumer Discretionary SPDR and its recent breakout bodes well for the ETF. The new highs in XLY and AMZN this month, however, did not carry over to the Equal-weight Consumer Discretionary ETF (RCD).

There are three ETFs covering the defense and aerospace group and all three recorded new highs. Even though these ETFs cover the same industry group and have similar price charts, they are quite different when we look under the hood and one is seriously underperforming the other two.

Selling pressure was extremely broad in Friday with all sectors declining and more than ninety percent of stocks in the S&P 500, S&P MidCap 400 and S&P SmallCap 600 declining. While this kind of broad selling pressure creates a short-term oversold condition, it also reflects a change in market dynamics and points to a corrective period ahead.

Signs of a correction were building for some time and it now appears that the long awaited corrective period is here. The S&P 500, in particular, is following the script from January 2018 quite closely.

The Russell 2000 ETF (IWM) broke out of a pennant formation last week and then fell sharply this week. This puts the ETF back in the pennant and near its make or break level.

The stock market started its latest run to infinity (and beyond) in mid August and the 20+ Yr Treasury Bond ETF (TLT) just happened to peak a week or so later. Note that stocks and bonds were largely on the same page from February to August as both moved higher.

Ten of the eleven sector SPDRs are positive over the last three months. The Real Estate SPDR (XLRE) is the only sector sporting a loss (~.75%), but I am not concerned with relative weakness because the price chart looks bullish overall.

2019 was quite the year with many stocks moving sharply higher from January to July or August. In particular, several Technology stocks moved higher during this period and then corrected into October. We can see this pattern reflected in the Equal-Weight Technology ETF (RYT) as it advanced over 40% and then corrected for three months.

2019 was a year with lots of distractions, and yet the S&P 500 recorded 52-week highs in six of the last nine months. The index surged 17.7% the first four months and recorded its first 52-week high in late April.

A theme is a fundamental trend that could influence a stock’s price in the coming months, or even years. As powerful as themes seem, they are still secondary to price action. There are many forces driving price movements and we cannot be expected to know them all.

The Gold SPDR (GLD) and the Gold Miners ETF (GDX) have been trending lower and lagging the broader market since September, but the breadth indicators show signs of strength within the Gold Miners ETF. Today we will examine four breadth indicators and analyze the price chart for GDX.

We are seeing breakouts and new highs galore in the stock market. Does this sound the all clear? Hardly. Investors waiting for the all clear will probably be waiting a long time. Moreover, the “all clear” could even mark the top, because that’s just the way Mr. Market operates.

Chartists looking for winning stocks should start with leading sectors and industry groups. Having a sector or industry tailwind can greatly improve the odds for a winning trade or investment. Sign up for free webinar.

The Mobile Payments ETF (IPAY) came to life in November with Square leading the chart. SQ, however, is not the chart leader. This post will identify three chart leaders and highlight three that look poised for new highs by yearend.