S&P 500′s Technical Hurdles to Overcome
The S&P 500 had the highest weekly ‘close’ at 1,361.23 this past week. The last time that occurred was on April 29, 2011, the Friday before the announcement of Osama Bin Laden’s death, which was followed by a gap up the next Monday morning, May 2, 2011, which was the start of a correction that lasted in the case of the S&P 500 for about 24 weeks before the final lows were in.
For other sectors and sub-sectors, that summer swoon lasted just 10 trading days as I show you in this video. I cover a variety of different charts to gauge where we are at within the stage of this rally.
For example, we have seen the following sectors make new 52-week highs just this past month:
- S&P100 Large Cap Index (OEX)
- S&P600 Small Cap Index (SML)
- NASDAQ 100 (QQQ)
- NASDAQ Composite (COMPQ)
- Dow Jones Industrial Average (INDU)
- S&P Retail Sector (RLX)
- NASDAQ Biotech Index (NBI)
- Commercial Real-Estate Index (IYR)
Some of the strongest sectors this year have been the sectors that aren’t on that 52-week high list. They include:
- Solar ETF (TAN) Up 34.25% outperforming the SP500 which is up 8.24% YTD*
- Networking Index (NWX) Up 25.16% outperforming the SP500 which is up 8.24% YTD
- Semiconductor Index (SOX) Up 18.55% outperforming the SP500 which is up 8.24% YTD
- Oil Services Index (OSX) Up 17.47% outperforming the SP500 which is up 8.24% YTD
- Banking Index (BKX) Up 15.77% outperforming the SP500 which is up 8.24% YTD
- Steel Sector ETF (SLX) Up 15.64% outperforming the SP500 which is up 8.24% YTD
(*YTD means year to date.)
If fact, the best performing senior index has been the NASDAQ, which is up 13.31% YTD, and the above six sectors and sub-sectors have managed to outperform even the best performer. However, what seems to be the biggest “technical challenge” at this point are the following sectors. If I had to go through index by index and sector by sector to gauge the health of the market, from a technical perspective, they are the biggest technical hurdles we have to push through.
Technical Challenge #1
The Transportation Index is now the worst performing major sector we have YTD, which does raise some concern that it has failed to make a new high with the Dow Jones Industrial Average. Thus, it hasn’t been able to confirm what is called Dow Theory.
Technical Challenge #2
While both the SP5600 small index (SML) and SP100 large cap index (OEX) have managed to make new historic highs and 52 week highs respectively, the SP400 midcap index (MID) hasn’t been able to yet. However, in terms of performance, the SP400 index is up more YTD than the large and small caps with a nice gain of about 12%.
Looking at futures right now that are trading just under 1,370, today it’s very possible we could gap up to new 52 week highs in the SP500. The SP400 would have to rally another 3.35% to catch up and make new highs, which isn’t out of the question (though unlikely). However, it should be noted that having the small, mid, and large caps rally to new highs at the same time historically has been much more bullish in terms of total market participation.
Technical Challenge #3
The New York Stock Exchange Index (NYA), which is made up of more than 8,000 names that trade on that index, is still nearly 7% from its 52 week highs. This is likely why we continue to see the broader participation we saw last October and in rallies that proceeded this one, such as the 2009 bottom or the 2010 rally to new 52 week highs after the flash crash seem “easier” from a stock selection point of view. The old saying "a rising tide lifts all boats" hasn’t been true in many cases this go around. In fact, it wasn’t until just this past week that the Commodity Index (CRX) just perked up above the October 2011 highs.
So, to put a few things in perspective on where other major sectors are relative to where the S&P 500 is trading – which is currently just 0.68% from new 52-week highs – these sectors are much further away from their 52-week highs:
- S&P 400 Mid Cap Index (MID) 3.35% away from new 52 week highs
- Transportation Index (TRAN) 7% away from new 52 week highs
- New York Stock Exchange (NYA) 7% away from new 52 week highs
- Semiconductor Index (SOX) 9% away from new 52 week highs
- Oil Services (OSX) 15.58% away from new 52 week highs
- Commodity Related Index (CRX) 17.96% away from new 52 week highs
- Banking Index (BKX) 18.41% away from new 52 week highs
- Copper (The Metal) 20% away from new 52 week highs
- Net Working Index (NWX) 21.26% away from new 52 week highs
- Steel Sector ETF (SLX) 50.20% away from new 52 week highs
So, while we all know the market can rally without participation of banks, and we all know the market can rally without every energy stock going up, and we also know in the tech space that chips and networkers can move at their own pace. Further, it’s not mandatory that that every sector and sub-sector hits new highs on the same day at the same time. It has to go noted that we still have major sub-sectors like Commodity Index, Oil Services, Banks, Networkers, and Copper still far below the 52-week highs of 2011. And look at the steel sector; it’s still well over 50% off the 52-week highs of 2011, with the S&P 500 just a hair away from new 52-week highs with those old highs likely going to be taken out today.
So, while the broader market has been enjoying the “Santa Claus rally” that seems to never end, the fact that the New York Stock Exchange, which is made up of over 8,000 stocks, is still well off its 52 week highs shows that most investors aren’t “feeling the love.” And when you breakdown what the S&P 500 is actually made up of, sector by sub-sector, it’s actually a huge chunk of it, especially with Energy and Financials making up nearly a third of the total index.
This is why I think it’s important in this update to look not only at how many times in the past the S&P 500 touched its weekly 13/34EMAs historically after a 1-2-3 Bullish Trend Reversal, but also two other charts that are known as the SPXA50R (S&P 500 stocks above the 50-day moving average) and the BPSPX (S&P 500 Bullish Percent Index) for some added perspective.
- SPXA50R (S&P 500 stocks above the 50-day moving average) is the percentage of stocks trading above a specific moving average is a breadth indicator that measures internal strength or weakness in the underlying index. The 50-day moving average is used for the short-medium term timeframe, while the 150-day and 200-day moving averages are used for the medium-long term timeframe. Signals can be derived from overbought/oversold levels, crosses above/below 50% and bullish/bearish divergences. I feel I have to revisit this chart as it was one of the charts I used back on the lows to say “the lows were in” in 2011.
- BPSPX (SP500 Bullish Percent Index) The Bullish Percent Index offers something for all sorts of traders. Bottom pickers can look for bullish reversals below 30%. Top pickers can look for bearish reversals above 70%. These are the more risky entries because tops and bottoms can extend over time. There may also be a test of the prior lows or prior highs. Trend followers can look for bullish reversals occurring above the 50% level. This is also another chart I feel I have to revisit as it was one of the charts I used back on the lows to say “the lows were in” in 2011.
So, the bottom line, while the trend remains bullish and the broader market continues to crank higher week after week, as I show you in this update, it’s very possible that some of the laggard sectors could begin to catch up while the broader market – at least in terms of S&P 500 – makes a new 52-week high. We could see the broader market begin to trade sideways to down to catch up to the 13/34 EMAs as other sectors begin to take leadership before more and more stocks start advancing together, allowing what seems to be the most hated rally on Wall Street ever to become a little less hated – at least by those who continue to follow the trend!
