Only your best friends will tell you

If I was a good friend to the US stock market, I’d want to subtly do it a favor and save it from an embarrassing social faux pas. You see, the S&P500 has bad breadth. And as we all know, only your best friends will tell you.

Let’s take a look at nine major components of that index, and indeed of the overall stock market, and then compare them to the S&P500 index. We’re looking for these sectors to confirm the new highs that the S&P500 made a little over a week ago – on May 22nd.

Below is the chart of the S&P500. Note my dashed green horizontal line that shows us how last week’s high was in fact a new one. Now let’s take a look at the sector ETF’s to dig into the markets breadth. Warning: This may get smelly.

S&P nearterm

 

The financials, below, show us that this sector did in fact put in a new high. It wasn’t as impressive as the broader market – in fact, it was almost flat to that of January’s high– but hey, a new high is a new high. Score 1 for financials.

xlf

Consumer discretionary stocks, which is represented by the ETF below (we sold this ETF a few weeks ago), didn’t put in a new high in conjunction with the S&P500.

xly

Consumer Staples, the ETF of which we bought recently, were flat. No new high in conjunction with the S&P500’s.

xlp

Utilities – we own this ETF too. Basing, but no new high—far from it!

xlu

Technology ETF—an impressive new high in conjunction with the broader index. Score 2, now, for the confirming sectors.

xlk

Healthcare. Close, but no cigar. Flat to its March high. Some might argue lower if you look at the intraday highs in March.

xlv

Industrials – no way, ‘Jose.

xli

Energy. No new high in May. No surprise!

xle

Materials tried and came close to matching the S&P500’s new high. But close only counts in horseshoes and hand-grenades, they say. No score.

xlb

So let’s tally it up. We have 9 major sector ETF’s presented above, two of which made new highs in conjunction with the broader S&P500 index (I covered Dow-Theory transports divergence in last weeks blog). So that’s non-confirmation by 7/9 significant sectors.

Hate to say it, Mr. Market, but you’ve got bad breadth.

One more reason that the crowd may be leaving his party pretty soon.

 

 

Keith on BNN Market Call this coming Friday June 5, 2015 at 6:00 PM

Keith BNN

Tune in to BNN next this Friday to catch me live on BNN’s 6:00 pm call-in show.

You can email questions now to [email protected] – specify they are for Keith – or you can call in with questions during the show’s live taping between 6:00 and 7:00 pm. The toll free number for questions is 1 855 326 6266

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3 Comments

  • Keith, two questions :

    – Last October, as has happened often in Octobers, the markets fell and offered a good buying opportunity. If the correction that you’re waiting for happens in the summer, do you think it would be wiser to buy then or wait for… October. Bottom line : would a summer correction (10%+) negate the chances of what has been a semi-regular market dip in October?

    – Recently on BNN you mentioned holding REITs “for the summer”. What would be the danger of holding for longer? Or of waiting for a major market correction (summer or fall) to accumulate some of these high-yielders beyond simply a summer-play?

    Reply
    • Andy–yes, the onset of an earlier correction in the summer usually modifies a correction in the fall. Take a look at the last “real” correction, which was 2011. The S&P went flat from May-July, then began falling from the end of July – to make a bottom at the end of September. The best time to buy was actually mid-late September. I wonder if that is happening right now?
      So yes, seasonal corrections don’t have to occur in the fall, and they can offer an early entry if that happens.
      I don’t have a problem with REIT’s so long as they don’t break current support. The danger is when Canada (not the US) raises rates–they will be rate sensitive to some degree. My thought is that the market has baked a rate rise into them, but that’s not going to happen soon here on this side of the border until our economy (which is lagging the US) catches up.

      Reply
  • LISTENING TO JOHN MURPHY YESTERDAY ON THE GOOD FORTUNE OF US BANKS AND INSURANCE (LIFE) CO. AND THE DOWN TREND IN US REITS, CONSUMER STAPLES (XLP) AND UTILITIES (XLU)… BAD FOR DIVIDEND PAYING STOCKS ON RISING YIELDS (10 YR ). XLP VERSUS $SPX: DOWN SINCE APRIL. JUST LOOK AT TOBACCO INDEX HE SAID (HIGHEST DIVIDEND PAYERS). PEPSICO COULD FIT THE BILL AS WELL AND GENERAL MILLS TO A LESSER EXTEND(…) $SPX NOW CRACKING BELOW RISING INTERMEDIATE TRENDLINE, 100 DMA BEING TESTED AS SUPPORT. IEF BREAKING SUPPORT AT $105. DESCENDING TRIANGLE SUGGESTS DOWNSIDE MOVE TO $101. (EQUITY CLOCK).

    GOOD DAY

    J.P.

    Reply

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