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New Update: The Weekly Market Bill Of Health

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    June 4, 2013

    We had a bearish engulfing pattern on last Wednesday which is a reversal pattern that suggested the short-term outlook has changed. This is evident in the loss of short-term bullish momentum as the percentage of stocks within the S&P 500 with a daily MACD buy signal plummeted to 23% over the last two weeks from a 75% reading, though the market’s longer term and intermediate term momentum remain bullish as does the market’s trend. Cyclical sectors continue to be market leaders while the defensive and interest-rate sensitive sectors like utilities and telecommunications have been pounded with the rise in interest rates over the last few weeks.

    S&P 500 Member Trend Strength

    As shown below, the outlook for the S&P 500 is clearly bullish as more than 60% of the 500 member-index have bullish short, intermediate, and long term trends. What is perhaps most important for the S&P 500 is that its long term health is incredibly strong given 85% of its members have rising long term moving averages.

    S&P 500 Trend Strength
    trend summary
    * Note: Numbers reflect the percentage of members with rising moving averages, 200d MA is used for long term outlook, 50d MA is used for intermediate outlook, and 20d MA is used for short term outlook.

    Breaking out the 500 stocks within the S&P 500 into their respective sectors and viewing their long (200d SMA) and intermediate trends (50d SMA) shows the cyclical sectors are surfacing as short-term leaders as they possess the strongest short-term breadth (% of members above their 20 day moving average). The most important section of the table below is the 200d SMA column which sheds light on the market’s long-term health. As seen in the far right columns, you have 86% of the S&P 500 members with rising 200d SMAs and 87.2% of its members above their 200d SMA with nine out of ten sectors in bullish territory with more than 60% of their members having rising 200d SMAs. The three sectors showing the healthiest overall trend are the consumer staples, financials, and industrial sectors as they have the best long term and intermediate-term trends.

    The defensive sectors were market leaders until recently as there is a rotation away from defensive to offensive sectors. Perhaps this is most evident when looking at the utility sectorwhich has 0.% of its members above their 20d SMA and the telecommunication sector has 14.3%.

    trend table sm
    Source: Bloomberg

    Market Momentum

    The Moving Average Convergence/Divergence (MACD) technical indicator is used to gauge the S&P 500’s momentum, on a daily, weekly, and monthly basis for short, intermediate, and long term momentum evaluation respectively. As seen in the table below, the momentum for the S&P 500 has weakened in the short-term with a daily sell signal last week, though the markets intermediate and long term momentum remain bullish.

    macd signals
    Source: Bloomberg

    Digging into the details for the 500 members within the S&P 500 we can see that the daily momentum for the market has weakened as the percent of stocks within the S&P 500 with daily MACD BUY signals was at 75% two weeks ago and has fallen to 23% currently, pushing the market’s short-term momentum into neutral-bearish territory, though this is near levels where we typically see a short-term bounce.

    The intermediate momentum of the market has also weakened to 63%, though still in bullish territory.

    Perhaps most significant is that the S&P 500’s long term momentum rests near a one year high as 81% of the 500-member S&P 500 have monthly MACD buy signals.

    macd summary
    Source: Bloomberg

    Further evidence of the rotation out of defensive sectors and into cyclical sectors can be seen when viewing the weekly and daily % MACD buy signals for all ten S&P 500 sectors. Many of the cyclical sectors had the worst readings for weekly MACD buy signals while the defensives had the best. However, recent changes in market momentum when viewing the daily % MACD buy signals shows the cyclical sectors having the greatest improvement at the expense of the defensive sectors.

    An example of this is that no stock within the S&P 500 Utility or Telecommunications sector are currently on a daily MACD buy signal while technology (39%) and the financial sector (33%) have the greatest daily MACD buy signals.

    % of Sectors with MACD Buy Signals
    macd sectors
    Source: Bloomberg

    52-Week Highs and Lows Data

    Confirming the data in the trend and momentum sections above, looking at new 52-week highs/lows data over the last trading week shows a clear rotation away from defensive sectors and into cyclical sectors.  Below is the 52-week lows/highs snapshot where 20.6% of the S&P 500 members had reached a 52-week high over the prior trading week, with the financial sector the clear stand out with 41% of its members hitting new highs, twice the rate of the overall market. Conversely, the telecommunications and utility sectors had no member reach a 52-week high this week as they come under selling pressure.

    52 week sm
    Source: Bloomberg


    The market is perhaps in the best shape it has been in over a year when looking at its intermediate and long term trends. We had a strong 25% rally off of last November’s lows and so a pause is healthy as to wring out some of the froth and overly bullish sentiment in the market. Given the long term trend of the market remains very healthy, this is likely just a small pullback in a bullish trend, with a trip down to the 50 day moving average on the S&P 500 near 1600 a likely downside target.

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    About The Author – Chris Puplava, Financial Sense Online

    Chris graduated magna cum laude with a B.S. in Biochemistry from California Polytechnic State University, San Luis Obispo. He joined PFS Group in 2005 and is currently pursuing the designation of Chartered Financial Analyst. His professional designations include FINRA Series 7 and Series 66 Uniform Combined State Law Exam. He manages PFS Group’s Precious Metals Managed Account, Energy Managed Account, and Aggressive Growth Managed Account. Chris also contributes articles and Market Observations to Financial Sense and co-authors In the Know—a weekly communication for Jim Puplava’s clients only—with other members of the trading staff. Chris enjoys the outdoors.