#thinkorswim

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.