From the desk of Steve Strazza @Sstrazza and Louis Sykes @Haumicharts
At the beginning of each week, we publish performance tables for a variety of different asset classes and categories along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the relative strength trends at play and preview some of the things we’re watching in order to profit in the weeks and months ahead.
In recent week's RPP Reports, we've discussed how Equity Markets had become more of a mixed bag with many key assets trading right at or near critical levels.
This week, we'll follow up on some of these areas we've been pointing out in recent reports and see how they look now.
The bottom line is that while there have definitely been more bullish than bearish developments since last week, prices continue to flirt with the risk levels we've previously outlined.
We still believe the weight of the evidence is in favor of the bulls, but with so many assets at inflection points, we're paying close attention to every new day's data as it comes in.
Let's kick things off as usual with our US Index table. It looks like a sea of green again, similar to what we had observed in the weeks/months ahead of the September correction.
Micro-Caps and Small-Caps were the big winners of the week, with the rest of the indexes following closely behind.
Last week, we mentioned how the Russell 2000 $IWM held it's risk level of 143 and was beginning to rebound off it to the upside. To see such strong follow through this past week is definitely a sign that buyers remain in control.
While the recent action has been encouraging for Small-Caps, this upcoming week is going to be a huge test.
We're watching closely to see if buyers can fill the air pocket between 163-166 that was created by February 24ths bearish breakaway gap.
If and when this happens, we'd expect buyers to press things further and eventually take on the year-to-date and 2018 highs in the 170-173 range. We'll just have to wait and see for now.
It's important to recognize that Micro-Caps $IWC, the even-crazier little cousins of Small-Caps, have already filled their late February gap in addition to breaking above their recent correction highs. As you can see in the chart below, most Large-Cap indexes like the S&P 500 $SPY have yet to take out their recent highs.
The SMID-Cap indexes have both also made new pivot highs similar to Micro-Caps. This healthy rotation down the market-cap scale speaks to positive risk-appetite and supports our view that the weight of the evidence for stocks remains firmly in the bull camp.
While Small-Caps and Micro-Caps still have to reclaim their January highs, a feat Large-Caps have long achieved - any short term relative strength should be viewed as a bullish expansion in participation for the stock market.
As for the remainder of the indexes in our table, the picture remains largely unchanged from what we've laid out previously:
- Transports $DJT continue to show strength at all-time highs and are leading their peer indexes by a long-shot over the trailing 3-months.
- Recent price action in the Nasdaq 100 $QQQ continues to be constructive as it recovers nicely from its recent correction. In fact, QQQ is currently up 3% today as I write this!
- Dow Industrials remain the weakest among the major Large-Cap Indexes, with price still trapped beneath both the key February and September highs.
In summary, the SMID indexes, which have all been a sideways mess and are still trapped beneath significant overhead supply, are outperforming in the short-term. Just look at those trailing monthly returns.
Meanwhile, the Large-Cap indexes that had been outperforming (excluding Transports), are now lagging the others considerably over the past month and quarter.
Let's move on to our Sector Table now.
Again, all sectors were positive on the week - another sea of green.
In fact, our expanded universe which tracks 47 sector indexes and ETFs were ALL higher on the week. A 100% upside week for our sector universe can only be viewed as bullish.
Here is a snippet from this week's ASC Institutional Momentum Report which shows exactly what we're talking about. Notice the broad-based strength. It's quite bullish.
Similar to Small and Mid-Caps above, Large-Cap Industrials $XLI also broke above their pre-correction high last week. What's more, is that the sector has now officially reclaimed its 2018 highs.
Considering the importance of the Industrials sector on the broader market, if XLI can remain above $80 it will be a major feather in the cap for bulls.
This development comes as no surprise seeing as Equally-Weighted Industrials $RGI have not only reclaimed their 2018 highs before their Cap-Weighted counterparts, but they've also gone on to make all-time highs this week.
In previous posts, we've repeatedly mentioned the strength out of Consumer Discretionary $XLY and Technology $XLK, so let's switch our attention today to those sectors that we don't want to be buying.
Where better to start than with Energy $XLE.
Despite the sector being the second-largest gainer on the week, these short-lived rallies are merely just mean reversion moves within the context of a powerful structural downtrend.
Here are three of the most important Energy subsectors: Oil Servicers $OIH, Refiners $CRAK, and Explorers $XOP.
They've all recently violated our risk levels which means the bias is now lower. We want nothing to do with these groups.
Even if Energy and its subsectors reclaim these levels, they would still be sideways messes at best.
Now that we know what's happening with Energy's Industry Groups, let's take a look at our Industry ETF table.
