Market's Bill of Health—Long Term Outlook Improves

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The rally over the last week has modestly improved the S&P 500’s long term trend from neutral-bearish to neutral-bullish as nearly 60% of stocks within the S&P 500 are still above their long term moving averages. However, given the recent correction, the intermediate outlook has deteriorated significantly with only 36% of stocks within the S&P 500 in bullish intermediate uptrends.

S&P 500 Trend Strength
trend summary
* Note: For further explanation of the market surveys and background on analysis, please click here.

200 Day Moving Average Evaluation—Long Term Trend Determination

As shown in the table below, the net percentage of stocks that are in long term bullish trends increased to 59%. In terms of sectors, the ones showing the worst market breadth continue to be utilities (32%), technology (41%), and energy (47%). The defensive consumer staples group is showing the best long term strength as 71% of its members are above their 200 day moving average (200d MA) while the cyclical financial and consumer discretionary sectors are not far behind with 67% and 66% of their respective members above their 200d MA.

200 day moving average evaluation

Moving Average Trend Analysis (MATA)—Intermediate Term Trend Determination

The MATA survey for the S&P 500 has improved slightly but remains firmly bearish with only 36% of the 500 stocks within the S&P 500 in bullish intermediate uptrends. The two sectors that are showing the most improved breadth are the industrial (50%) and materials (48%) sectors, which typically do best when the USD is weak and/or emerging markets are strong.


52-Week Highs and Lows Data

The big standout in the 52-week highs/lows data is the utility sector as nearly one fifth of the group hit a 52-week low in the last five days with no new highs. By far the healthiest group is the consumer staples sector with the greatest percentage of 52-week highs at 14.29% and near the smallest percentage of 52-week lows at 2.38%, with health care also showing good overall breadth with 9.62% of its members hitting new 52-week highs in the last five days and only 1.92% hitting new 52-week lows.

52 week high lows
Source: Bloomberg

Sector Rotation

Below is the relative rotation graph from Bloomberg that shows both the relative momentum and relative performance of assets versus a benchmark. Numbers north of 100 show improving relative momentum while numbers below show weakening relative momentum to the benchmark, and numbers to the right of 100 show outperforming assets and to the left underperforming assets.

While all three surveys above show the utility sector at or near the worst in terms of bullish breadth trends, the relative momentum of the sector has improved and may indicate their relative underperformance may be coming to an end. Evidence of this is seen by the sharp vertical move by the utility sector ETF (XLU) which is helping the sector move from the “Lagging” quadrant (lower left) to the “Improving” quadrant (upper left). Another shift is the improvement in the industrial sector ETF (XLI) which is further along in terms of sector rotation as it is nearing a move from the “Improving” quadrant (upper left) to the “Leading” quadrant (upper right). The strength in the sector is also being confirmed by the three surveys above which are showing that the industrial sector is becoming a market leader.

Weekly Sector Relative Performance to S&P 500 (11/28/2012)
sector performance
Source: Bloomberg


Over the past month there have been many calls for a coming recession and bear market but the data above does not appear to be supporting this notion as defensive groups are lagging and cyclical groups are leading—not what you would expect heading into an economic contraction. For example, the basic materials and industrial groups are showing some of the strongest breadth and are on the verge of becoming market leaders, while at the same time the absolutely most horridly looking sector, utilities, is showing the worst breadth. When making a recession or bear market call, it is usually best to take a “weight of the evidence” approach rather than relying on any one indicator. While some are arguing for a coming recession based on the newly released Chicago Fed National Activity Index (CFNAI), other data like the Philly Fed State Coincident survey, the technical surveys highlighted above, as well as the credit markets do not paint as bearish a picture, a topic that will be covered in my Friday post.  

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About Chris Puplava