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Expert technical analysis of financial markets by JC Parets

[PLUS] Weekly Market Notes & Breadth Trends

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From the desk of Willie Delwiche.

Key Takeaway: Stocks looking at a year two market. Stocks looking at a year of two markets. Economic surprises remain a tailwind for now but data struggling to keep up with expectations.

Cyclical value sectors remain in their leadership positions. New highs last week in Materials, Industrials & Financials helped pace the market, and rally participation with these sectors remains robust. The rotation out of leadership from the growth sectors can make it a challenging environment for passive investors. Technology, Discretionary, and Communication Services make up 50% of the market cap of the S&P 500, and the index could struggle to see sustained strength if these areas are not participating. Defensive areas like Utilities & Consumer Staples are buried at the bottom of the rankings. 

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[PLUS] Weekly Market Notes & Breadth Trends

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From the desk of Willie Delwiche.

Key Takeaway: New monthly highs reflect broad participation and a healthy rally. Stocks struggle to celebrate blowout quarters if future growth prospects are not bright. Elevated expectations bar could leave stocks & the economy victims of their own success.

Sector-level leadership is unchanged in this week’s relative strength rankings. Materials, Industrials, Financials and Real Estate held down the top four spots for the second week in a row. Choppiness and rotation continue outside of that group. Rotation can also be seen in our industry group heat map. Improving conditions are widespread at the large-cap level and deteriorating conditions are widespread at the small-cap level (see page 5 for a chart version of this rotation). Mid-cap groups dominate the top of our industry group rankings (holding seven of the top ten spots).

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[PLUS] Weekly Market Notes & Breadth Trends

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From the desk of Willie Delwiche.

Key Takeaway: Stocks have benefitted from an historic stretch of good news. Commodities suggest higher inflation may not be transitory. Global breadth trends turning higher.

With both Energy and Communication Services faltering in recent weeks, the sector leadership group has narrowed to Materials, Industrials, and Financials. Materials, which took over the top spot in the rankings this week, is the rare sector right now that has been a leader on both a short-term and long-term basis. Health Care and Real Estate (both of which made new highs last week) are climbing in the rankings and if recent strength persists could soon join the leadership group.  Our industry group heat map shows continued leadership from mid-caps overall.

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[PLUS] Weekly Market Notes & Breadth Trends

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From the desk of Willie Delwiche.

Key Takeaway: Broad market strength gets front page treatment. German Bund yields pointing the way higher for US Treasury yields. Economic activity is booming, holding true to the post-recession historical pattern.

The Energy sector’s pullback from its March peak has finally caught up to it in our relative strength rankings. Even though Energy remains the top-performing sector in 2021, it plummeted from third to ninth in this week’s rankings. If it is unable to get back in gear in short order, it’s time in the leadership group could come to a swift conclusion. While Energy fell in the rankings, Materials and Real Estate both climbed higher. Industrials and Financials have been laggards of late, but remain in a leadership position overall. Our industry group heat map shows mid-caps leading, with large-caps improving and small-caps deteriorating.

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[PLUS] Weekly Market Notes & Breadth Trends

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From the desk of Willie Delwiche.

Key Takeaway: New highs bring out the bulls. Excessive optimism offset by broad market strength in the US & around the world. Despite Fed assurances of patience, rising bond yields will soon put pressure on the liquidity backdrop.

Their short-term performance has been mixed, but our relative strength rankings still have Financials, Industrials and Energy holding down the top spots. The still unanswered question from the past few weeks is whether the short-term trends (e.g., Technology in the top spot, Energy in the last spot) represent the beginning of sustainable shifts in leadership or are part of the process of digestion after longer-term trends moved too far in the other direction. A similar question presents itself when looking at the industry group heat map. Small & mid-cap groups dominate the top of the rankings, but large-cap groups appear to be on something of an upswing. 

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[PLUS] Weekly Market Notes & Breadth Trends

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From the desk of Willie Delwiche & Ian Culley. 

Key Takeaway: The overall market continues to digest gains within a larger structural advance. Market sectors that relate to tangible goods push to new highs. Traditional safe-haven assets fail to ensure safety.

Financial, Energy, Industrial, and Material sectors continue their reign in our relative strength rankings, while mid-cap groups narrowly surpassed small-caps to command the top-tier of our industry group rankings. Though more defensive sectors continue to have the best relative strength on a short-term basis, Technology and Consumer Discretionary are starting to pick up in the near term as well. Small-cap deterioration persists at the industry group level, whereas large and mid-caps improve.     

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[PLUS] Weekly Market Notes & Breadth Trends

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From the desk of Willie Delwiche.

Key Takeaway: Even with bottlenecks & distortions, economic recovery & cyclical rally remain intact. Tactical risks have risen as the market digests gains of last year. Watch bond yields & global participation for evidence that the rally is ready to resume.

Cyclical value sectors remain the leaders in our relative strength rankings and small-cap groups continue to dominate the upper-tier of our industry group rankings. But there is evidence beneath the surface of shifting trends. Rather than seeing a reversion back to growth leadership in our sector rankings, we are seeing defensive areas of the market start to heat up. Consumer Staples, Utilities & Real Estate have the best relative strength on a short-term basis. At the industry group level, small-cap groups are deteriorating while large-cap groups are improving.       

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[PLUS] Weekly Market Notes & Breadth Trends

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From the desk of Willie Delwiche.

Key Takeaway: Small-caps hit pause but remain market leaders. Another breadth thrust shows rally participation remains robust. Bond yields are digesting recent rise, but the path of least resistance remains higher.

The Technology sector continued its descent toward the bottom of the relative strength rankings. It dropped to its lowest ranking since mid-2016 and fell out of the sector leadership group (which based on a three-week smoothing of the current ranking) for the first time in two years. Technology is joined in the cellar by Utilities, Consumer Staples and Consumer Discretionary. Cyclical value leadership remains intact. Even though small-cap groups led the way lower last week, our industry-group rankings continue to show leadership from small-caps and mid-caps.     

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