#sector roundup

Let’s have a look at the broad market and its major sectors again, shall we?  First up, S&P 500:

As you can see, the uptrend is still very much intact.  Weird anomalies like the random volume spike of March 19 aside, there doesn’t seem to be any indication that the character of the market has changed: volume on the rallies may not exactly inspire confidence, but I can’t see any evidence of distribution either.

Next we have basic materials ($DJUSBM).  This sector has somehow managed to keep enlisting just enough volume on the upside to keep the rally going throughout the past few months, but the meteoric rise of the past week is rather suspicious.  It broke the uptrend line extending all the way back to last June as it had only done once before, which was the sudden early January surge that resulted in a healthy late January correction.  So a similar pullback now would not be out of place; there are some fairly obvious horizontal support levels at 527-530 and 517-520.

Now for consumer services ($DJUSCY).  It’s very hard to trust the early-April rally when volume is so anemic, and classical technical analysis would immediately spot a possible double top or head-and-shoulders top forming (with a downside target around 1530).  The one thing that bothers me, though, is the heavier volume that came in around the neckline, both in mid-April and then again in the last two sessions.  This would seem to indicate support by the big players; if they were net selling, we would expect the volume to be higher at the peaks.  So I can’t be bearish about this just yet, until and unless that neckline actually breaks.

The next chart is for energy (oil & gas) ($DJUSEN).  This sector had some difficulty clearing previous resistance in February (there was a sharp buying climax top at 382 back in June, not shown on this chart), but the high volume up day of February 22 made for a clean breakthrough.  The high volume on the down days of Feb. 25-26 was cause for concern, but the renewed bullish power on March 4-5 seemed to erase those doubts.  However, given how the rally fizzled and died so completely in the next week, and how March 19 was a weird volume anomaly across the board, it’s now fair to ask if those up days of March 4-5 were in fact a buying climax.

April 21 saw the sector find support at the previous resistance zone (383), and the acceleration away from it on April 28 was certainly bullish, but the volume on the rally since then has not at all been measuring up to late February and early March’s rally through the same territory, which is a classic sign of a double top.

Of the stocks in this sector, how about Chevron (CVX)?:

The very high volume of March 4-11 (one day before the 112.70 peak) on what are mostly low-spread days reeks of distribution.  Support came in at 100-101, but look at that big down day on April 30 and how its volume compares to any day in all of April to the present and tell me that’s not bearish.

Moving on to financials ($DJUSFN).  Well, this is just obscene, isn’t it?  And nothing in there that gives any indication that the rally is stopping soon.

The next sector is health care ($DJUSHC), in which I see no clear signals, so I’m not going to waste my time thinking more about it.

The industrials ($DJUSIN) paint a similar picture to the financials, except that the volume has clearly crept up in late April to the present, which when combined with the narrow ranges and the new highs could be interpreted as evidence of distribution.  But if it is, there isn’t enough volume to consider said distribution as major.

We turn next to consumer goods ($DJUSNC).  It may seem odd that I look at this chart of a sector that’s net gained very little since January and don’t immediately have bearish thoughts, but hear me out.  It’s true that the peaks in late January and early February look like distribution, but with how much volume came in at the early March bottom, there’s a good chance much of it was accumulated right back at that point.  And the huge volume on the doji that was April 29, forming a support that held again on May 4, cannot be ignored.  Combine that with the high-volume temporary support at 910 on April 20, and it certainly looks like the big interests could be re-accumulating everything they can get in the 904-910 zone.

Within this sector, let’s have a look at Activision Blizzard (ATVI):

Yes, the volume spike in early February was probably major distribution in retrospect.  But the ensuing volume spikes of March 19 and May 4-5 make it pretty clear that there are plenty of willing buyers in the 87-90 range (if the number of quick bottoms in that range all since the beginning of 2021 weren’t enough evidence for you).

And how about Nike (NKE)?:

Usually I don’t like such lumpy volume graphs, but this one makes it crystal clear that we have strong support at 125 (just like back in November), and after a textbook consolidation earlier this week with volume falling off, the stock’s broken upward out of a hinge position on another volume spike.  The 145+ zone will clearly be a challenge, but the only evidence of distribution I see in that zone is the spinning top back on December 21, which should by now be outweighed by the March and April bottoms I just mentioned.  Ideally we’d like to see more volume on this next run up to 145 to be more comfortable about the bull case.

From consumer goods we proceed to real estate ($DJUSRE).  The trend is obviously still up, and that’s about all I’m going to try to take away from this. 

Next up is retail ($DJUSRT), where it’s quite striking just how clearly the volume fell off after last summer (occasional spikes excepted).  Again, I see nothing here that would hint at a lasting downtrend in the making.  If the current pattern turns into a head-and-shoulders top and breaks the neckline at 2100, then a trip back to 2025 would be in order, but that’s about all I can say.

This next chart is technology ($DJUSTC).  The late February and early March troughs, plus March 19 if you trust that wacky day, sure look like accumulation to me.  The recent clear support at 3700 is right around a normal halfway retrace of the steep early April rally, and the uptrend support line going back to last summer has not been broken.  All looks in order for a continued advance.

Cisco (CSCO) (after a pullback; it looks short-term overbought right now) and Nvidia (NVDA) might be worth a closer look.  No charts because this has taken too long already and I’m hungry, darn it.

This next chart is telecommunications ($DJUSTL).  Dear god, what a mess.  What can we say for sure?  There appears to be resistance at 184-185 and support at 164-165.  Beyond that, I have no idea.  Trade the range?

And lastly, utilities ($DJUSUT).  Another chart I’m not going to try to read anything into, and you can’t make me.  Watch for a flag continuation pattern, I guess?  If I may shift gears into Elliott waving for a second, the March to early April rally certainly looks like it could be either B of a flat or the beginnings of an impulse up.  A new high over 337 would support the impulse theory, but if we retreat back to 314 before then, the flat is more likely.

Let’s take a look back at some of the stocks/ETFs I called out back in this post in January.  First, Comcast (CMCSA):

Well, this wasn’t such a great short idea.  As you can see, CMCSA was repeatedly supported just above 48, then convincingly rallied away from it with a big volume spike on 1/28.  It’s worth noting that volume and spreads both dropped appreciably in the three sessions of 3/12 - 3/16, which just so happened to coincide very nicely with testing the top of the uptrend channel again.  This showed that demand was not willing to follow the prices up, so the ensuing selloff should have been no surprise.

Next let’s look at Caterpillar (CAT).  I should have taken my own long advice on this one.  1/27 had a scary-looking gap down, but the uptrend support line held.  Volume increased further on the tug-of-war day that was 1/29 while support continued to hold, which should have been my clearest indication to go long.  Finally, the rally of 2/2 on even higher volume, clearing safely away from the danger zone, acted as final confirmation.  Since the 2/2 close, CAT is up 25.2%, compared to only 9.4% for the S&P 500.  (Or if we’d gotten in at the 1/29 close, it would be 31.8%!)

The Vanguard Industrial ETF (VIS) tells a similar story but more muted, making only 16.4% since the 2/2 close, and without such clear volume indications as CAT.  However, the rising wedge since June is troubling:

QQQ and XLK I had mentioned as possibilities for a “quick short”; as it turned out, the operative word was “quick”: it really only would have worked for about a week after I wrote that (low on Friday, 1/29), before the tech sector rallied back to new highs.

And what of the sectors themselves?

Broad market (S&P 500): “If the current pullback goes a bit deeper, and especially if volume drops off simultaneously, we may have a setup for a gap fill buy signal.”  Well, the pullback did go deeper (to Fri 1/29), but the volume certainly did not drop off -- in fact, it jumped to an alarming level.  Turned out that was in fact the lowest point the S&P has seen since, so the bullish outlook was correct, but the price action and the volume on the ensuing rally certainly didn’t spell “gap fill buy signal”.

Basic materials:  “...this sector looks set to resume its rally as long as it can find support here fairly soon.” 1/27 looked scary, but the next few sessions showed volume continuing to pile up right around that support point, which in retrospect was clearly accumulation.  The accumulation zone was then tested twice and convincingly held both times (3/1 and 3/5).  Since the 2/2 close, this sector is up 19.5%.  So if a week counts as “fairly soon”, I’d say this was a good call.

Consumer services:  “This one doesn’t look so clear-cut[...]  While there’s yet no evidence of distribution, it seems clear from the two sessions since that demand is stalling out.”  The overall shape of the price action since then follows the pattern seen elsewhere with a scary-looking drop on 1/27 that didn’t end up producing a lasting pullback, but since the 2/2 close, the sector is only up 5.8%, which lags the S&P 500 at 9.4%.  So the noncommittal call was pretty justified.

Energy (oil & gas):  “If yesterday’s hammer candlestick gets confirmed to the upside[...], then the rally should resume to new highs without much fuss.”  Well, it didn’t get confirmed, so this is a wash.  But as with other sectors, we did see the rally resume a week later.

Financials:  “A resumption of the rally would normally be expected pretty soon, with the pullback at about halfway and the uptrend support line coming soon.”  Well, the pullback went deeper, breaking the uptrend support line.  Said line wasn’t reclaimed until 2/4, but it’s held up well since then.  Another case of the rally taking longer than I expected to resume but resuming all the same.

Health care:  “...the risk/reward situation isn’t as good here as with some of the sectors above.”  Nailed it: since the 2/2 close, this sector has been up only 4.0%, even worse than consumer services.

Industrials:  Already covered above via VIS/CAT.  “The case is compelling for a rally,” and that’s what we got.

Consumer goods:  “...what could be considered evidence of distribution, in the January 21st volume spike on a selloff. [...] it’s clearly a more bearish sign than most of the other strong sectors showed.”  Bingo!  Unlike other sectors, this one’s early February highs were just barely clear of January, and since the 2/2 close, it is up only 1.9%, the worst yet.

Real estate:  “I don’t know if I can take anything meaningful away from this one.  [...]  It’s an inconclusive market...”  A punt, then, so no prediction to rate.

Retail:  “Can we trust this recent high?  My instinct is no: [...] the last two days seem to indicate that demand is exhausted for the moment; so a pullback would be expected.”  Again, my bearishness was justified, as this sector did even worse than consumer goods in the next month and a half, never breaking out above that aforementioned January high and sustaining a 10% selloff in late February to early March.  Gain since the 2/2 close is 5.0% (which lags the broad market), mostly on the basis of an early April rally.

Technology:  “Surely that gap’s getting filled soon, right?”  It was indeed filled, on 1/29.  But as mentioned above via QQQ/XLK, that was the last day you would have wanted to keep a short open on this sector.

Telecoms:  “...I must remain neutral until we get a clearer sign one way or the other.”  Since the 2/2 close, this sector has returned 9.9%, just above the broad market, so my indecision was justified.

Utilities:  “I have no idea what it is telling me.”  Another punt.  I will however note that March 5 and March 8 should have been a clear sign that the bottom was in.

I’m going to do something a little different today: having a look at the current state of the broad stock market (USA) and each of its major sectors.  I apologize for linear rather than logarithmic scale on each of these, but Thinkorswim still hasn’t fixed the bug they introduced the other year where going to log scale gives you axes that are constantly spaced on the screen, and therefore at completely unhelpful random-looking price values, instead of keeping constant price intervals (therefore at shrinking pixel counts as price rises) like every single other stock chart platform does it.  And all this despite my once exchanging emails with them about it many months ago, complete with screencaps and everything.

So first up is S&P 500.  The trend has been undeniably up since the beginning of November, and while volume on the recent legs of the rally hasn’t been stellar, there’s nothing on the bear side to indicate growing supply either.  (The volume spike in December was the last Friday before Christmas, which I’ve since come to realize always has abnormally high volume, every year, just like the last week of the year always has abnormally low volume, so we can’t read anything into it.)  If the current pullback goes a bit deeper, and especially if volume drops off simultaneously, we may have a setup for a gap fill buy signal.

Next up is basic materials ($DJUSBM).  The current corrective selloff still looks of normal proportions without any huge selling pressure evident, and we’ve basically filled the gap left by the volume spike of January 6, so this sector looks set to resume its rally as long as it can find support here fairly soon.

Now to consumer services ($DJUSCY).  This one doesn’t look so clear-cut, as the volume so far in January is clearly not measuring up to November and December; note especially the huge rally on January 20 with no volume behind it -- such a huge disconnect between effort and results is highly suspicious and may signal the end of a move.  While there’s yet no evidence of distribution, it seems clear from the two sessions since that demand is stalling out.

Within this sector, Comcast (CMCSA) might be worth a closer look:

The multiple top that it broke down from on January 15, with volume and a gap, and volume during the multiple top formation following just the pattern you would expect (heavy on selloffs and weak on all rallies past the initial peak), would seem to indicate downside to at least the 46 area, or right around the low of November 10, in the vicinity of a big as-yet-unfilled gap.  If you prefer the 1-point P&F chart, then the downside target is even lower, at 44.  Note also that the higher volume of January 21 still wasn’t enough to get back into the gap: not a bullish sign.

The next sector up is energy, and by that I mean oil and gas ($DJUSEN).  The low volume on the latest top was begging for a correction, which we got, but (kind of like in the broad market) there isn’t much evidence of selling pressure to make me think a deeper decline is in order.  If yesterday’s hammer candlestick gets confirmed to the upside (and not far from the uptrend support line, not shown because I didn’t think to draw one before I took this screencap), then the rally should resume to new highs without much fuss.

Now we come to financials ($DJUSFN), whose chart looks so much like the broad market’s that there’s very little to add.  A resumption of the rally would normally be expected pretty soon, with the pullback at about halfway and the uptrend support line coming soon.

Next is health care ($DJUSHC).  Unlike basic materials, energy, or financials, this sector’s steep rally at the outset of the year didn’t have strong volume behind it.  Nevertheless, bears haven’t been able to get anything done here, and the notable shrinkage of both spread and volume in yesterday’s session would indicate that a resumption of the rally is likely.  However, since the pullback didn’t get us close to any decent danger point (obvious support), the risk/reward situation isn’t as good here as with some of the sectors above.

This chart’s of industrials ($DJUSIN), and it’s basically the same story as basic materials and financials, but arguably even better because of the clear volume shrinkage in yesterday’s session, along with meeting support just above the congestion zone of December.  The case is compelling for a rally.  Perhaps a play in an ETF like VIS, or maybe Caterpillar (CAT)?

Next up we have consumer goods ($DJUSNC).  Here, for the first time, we have a clearly uptrending sector with what could be considered evidence of distribution, in the January 21st volume spike on a selloff.  If the selloff fizzles quickly, as yesterday’s session suggests it might, then it may not end up meaning anything; but it’s clearly a more bearish sign than most of the other strong sectors showed.

The sector may also be working itself into an apex; if it does, then the evidence so far would have to favor an eventual break to the downside -- volume didn’t shrink over the course of January’s consolidation like it normally should, plus of course the 1/21 volume spike.

Our next sector is real estate ($DJUSRE).  I don’t know if I can take anything meaningful away from this one.  The manner in which the early January selloff was conducted, ending in two high-volume but low-spread days followed by a thrust lower on even lower volume, would seem to be bullish... but the bulls failed to run with that, putting no significant volume behind the ensuing rally.  It’s an inconclusive market, and it’s just coming into resistance again, so the best bet might just be to trade the range until we see something change.

Retail ($DJUSRT) is our next chart; this index is actually a subset of the one I used for consumer services.  Can we trust this recent high?  My instinct is no: much like in consumer services, the run-up of this week was abrupt and not supported by commensurate volume, and the last two days seem to indicate that demand is exhausted for the moment; so a pullback would be expected.  I just can’t find an ETF or individual issue that looks enough like this to take advantage of it.

The next chart is technology ($DJUSTC), and honestly this is starting to look really familiar now.  Is this the clearest example yet of a rally on January 20th that was not at all justified by the volume (which in this case was actually clearly lower than on either of the adjacent days)?  Surely that gap’s getting filled soon, right?  An ETF like QQQ or XLK might be a good candidate for a quick short here.

We move on to telecommunications ($DJUSTL).  I can’t think of anything interesting to say about this one, except to note that November’s gap has now been filled.  I don’t see any obvious evidence for either a bullish or a bearish stance on this one, so I must remain neutral until we get a clearer sign one way or the other.

And lastly, we come to utilities ($DJUSUT).  Just like with telecommunications, this is a chart I simply cannot get excited about, because I have no idea what it is telling me.