The Trends We Indirectly Follow

JC Parets
May 22, 2019

From the desk of Tom Bruni @BruniCharting

There are trends people tend to pick up on indirectly, usually by looking at individual stock charts or ETFs on an absolute basis, seeing the relative strength/weakness, and connecting the dots.

See something in one chart; it may not be all that special. See it in a lot of charts from the same area of the market...you're usually onto something.

That's the indirect way, but if we look at a trend directly, we can get a better feel for the exact strength of that underlying trend/theme.

In this post, I want to highlight a few trends that I know people are aware of, but may not realize their severity.

First is the Mid-Cap 400 relative to the S&P 1500, which is breaking down to its lowest levels since early 2010, confirming a long-term top and penning the start of long-term underperformance from the Mid-Cap segment.

Click on chart to enlarge view.

Growth has been in favor for more than a decade, but not all Growth is created equal. Here's the S&P Smallcap 600 Growth Index breaking an 8-year support level relative to the S&P 500 Growth Index. It's already fallen ~25% from its 2016 highs, and the rate of this decline looks ready to accelerate further after failing to reclaim support a few weeks ago.

There's been a defensive posture to the market, particularly since the fourth quarter of last year, but not all cap segments of Consumer Staples have worked equally well. Small-Cap Consumer Staples have underperformed their Large-Cap counterparts by 19% since mid/late 2018 and remain in a clear downtrend.

Here's a look at the two on an absolute basis.

Small-Cap 600 Consumer Staples are stuck below a downward-sloping 200-day moving average with resistance at 74.50-75.00 and momentum in a bearish range.

Meanwhile, Large-Cap Consumer Staples are pressing up against the top of their range and attempting to make new all-time highs.

What a contrast...The difference is evident in the absolute charts, but the trend really comes to life when you plot the relative performance on one scale as we did initially.

Utilities also see the same type of contrast, which have underperformed by 20% since topping in the fourth quarter.

If you're an active market participant, you're probably not surprised that these trends exist, but I hope this post has at least highlighted the value of reviewing these trends in a direct manner every so often...especially if you're in the business of delivering superior relative returns.

We regularly review these trends for our Institutional Clients and deliver essential updates via monthly reports and weekly touchpoints.

If that sounds interesting to you, check out our Institutional offering.

Thanks for reading and let us know if you have any questions!

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Allstarcharts Team

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