This is the weekly post that aggregates all the charts we put together throughout the week and organizes them all into one, easy to flip through deck.
Saturday Morning Chartoons: Breakouts & Retests? Or Do We Fail?
This is the weekly post that aggregates all the charts we put together throughout the week and organizes them all into one, easy to flip through deck.
Energy Stocks Are Losing Steam
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Over the past few weeks we’ve seen a handful of major indexes, like small and mid-caps, resolve higher and kick off a fresh up leg. But breadth has really cooled off since then, as participation has been declining despite the major averages rallying.
This week, we’re finally seeing that weakness show up at the index level — particularly from SMIDs and cyclicals.
When we were reviewing our breadth charts, we noticed the deterioration in energy sector internals has been particularly bad. Not only is breadth not confirming the new highs from energy stocks… but there are actually some pretty ugly divergences in our new high indicators.
Energy stocks are currently vulnerable, sitting just above their breakout level at former resistance. Considering the lack of support from internals, this group is on failed breakout watch.
Let’s take a look under the hood and discuss what we’re seeing.
[Premium] Mid-Month Conference Call Video Recording November 2021
This is the video recording of the November 2021 Mid-month Conference Call.
Breakouts and Breadth Expansion
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Last week, we pointed out some mixed signals in our breadth indicators.
Despite the new highs from almost all the large-cap major averages, we had yet to see new highs in their corresponding advance-decline lines.
We also hadn’t experienced the kind of expansion in participation that we’d expect to accompany the indexes to new price highs.
Our new high indicators were still muted, even on shorter timeframes.
But that was last week. This week, mid-caps and small-caps have joined their large-cap peers at new record highs after making decisive upside resolutions from their year-to-date ranges.
And guess what? We’re finally getting that breadth confirmation we were missing.
Let’s talk about it.
Breadth Still Has Work To Do
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
While breadth has improved in recent weeks and months, the bulls still have their work cut out for them.
When we consider all our breadth indicators in aggregate, the evidence remains mixed. What else is new!? It’s been that way for the majority of this year.
Many of the major indexes made new all-time highs this week. Meanwhile, some advance-decline lines are moving higher, but others are moving lower. Some are at the top of their range, but others are at the bottom of theirs.
The advance-decline line measures stock market breadth based on cumulative net advances. In other words, it takes the number of advancing stocks on a given day and subtracts the number of declining stocks. That number is then added to the previous day’s value, creating a cumulative advance-decline line.
A/D line divergences occur when price is making new highs and the A/D line is NOT.
Just because there’s no divergence in the A/D line doesn’t mean the market can’t correct. We see this happen all the time. But when there is a divergence in the A/D line, we want to pay extra-close attention because there is a heightened possibility that price weakness will follow.
Let’s take a look at advance-decline lines for some of the major averages and indexes in the US equity market.
There’s Value Beneath the Surface
From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
September saw significant selling pressure in equity markets. The S&P 500 suffered its worst drawdown since last year, and many of the major indexes made a lower low. But when we look under the surface, it really wasn’t that bad.
We didn’t get an expansion in new lows to confirm the new lows in price. Instead, these readings remained muted across most of the major averages in the US.
Since then, the bulls have regained control. Breadth has improved throughout October as the indexes have rallied back toward their former highs. Although we haven’t seen a real expansion in participation at the index level, things have definitely been moving in the right direction.
Let’s talk about it.
[Premium] Q4 2021 Playbook
This is our ASC Research Q4 2021 Playbook.
- Stocks (International & U.S.)
- U.S. Sectors & Industries
- Market Breadth & Sentiment
- Commodities
- Currencies
- Intermarket Analysis
- Crypto Currencies
- New Trade Ideas
- Overall Strategy
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