Trend Check with Tushar Chande

Micron Technology (MU) Captures The Essence of this Rally (Or, Market Trend Check 10/31/2017)

The rally in Micron since the breakout I pointed to in early September (see Chart 9 of that post) neatly summarizes the story of this market. In the composite charts below, at left is the initial breakout, on September 14.  I felt this breakout was an important sign that the market would rally.  On the right is Micron today, rallying mightily, just like the rest of the Technology sector. That in short is what the market has done and is doing, with a more detailed analysis below.

The breakout in Micron Technology (MU) was a key sign of the rally to follow.

 

Trend Check Major Market Indexes


We begin by using my trend-following models to check the major indexes.  In Chart 1, the number of stocks in the index increases from left to right, from 30 to over 2000.  The time period increases from top to bottom, starting at 25 days and doubling at each step.  Except for the Russell-2000 and the NYSE index, which are flat on the short-term (see red box), the indexes are trending higher.  So, overall, the picture is bullish.  Note that all indexes have been bullish all year long at the intermediate- and long-term time frames.

Chart 1: Overall, the indexes are trending higher, except for the Russell 2000 and NYSE in the short-term (see red box outline).  

 

Bonds, Gold, Stocks and Dollar


Next, looking at the four core markets, stocks are trending higher on all four time frames, as we saw in Chart 1. Bonds and gold are trending lower on the short- and medium-term time frames. At the long time frames, bonds are still trending higher, but gold is mixed. The dollar is trending higher on the short- and medium-term time frames, now flat on the intermediate-term time frame, but still trending lower on the long-term basis. (See my earlier analysis here.)

Chart 2: Bonds and gold are pointing in opposite direction to the US Dollar across almost all time frames. Stocks are trending higher on all time frames as shown in Chart 1.

 

Path of Least Resistance for Russell 1000 Universe


The Path of Least Resistance applies the trend-following models to each stock in the Russell 1000 universe, then rolls up the results, and breaks them down into just two categories, trending up or flat-to-down.  By this metric, the path of least resistance has just turned negative on the short-term, consistent with the neutral reading for the Russell 1000 in the short-term in Chart 1.   The path of least resistance is higher on all other time frames, and most importantly, in the longer intermediate to long-term area.  So, overall, the majority of stocks in this group are trending higher.

Chart 3: A majority of stocks in the Russell 1000 universe are trending higher in all but the short-term time frame.


S&P 500 Sector Analysis via Guggenheim Equal Weight ETFs


The Guggenheim equal weight ETFs allow us to get a more detailed insight into the price action of  major sectors in the S&P 500 universe on an unweighted basis, so that each stock has "equal impact" on the analysis.  The consumer staples is the worst performing sector, as I have discussed before, and Consumer Discretionary and Energy are weakening on the short-term. The strongest sectors, trending higher on all time frames are Materials, Financials, and Technology.

Chart 4: The three strongest sectors are Materials, Financials and Technology. Consumer Staples i.e. defensive stocks are the weakest.

 

S&P 500 Sector Analysis via Chande Trend Meter


I used the Chande Trend Meter to rank the major sectors in the S&P 500 Index.  Note that consistent with the RHS data in Chart 4, the XLP or Consumer Staples is the weakest trender.  Technology stocks are strong (QQQ, XLK), along with materials (XLB) and Financials (XLF), consistent with Chart 4. Major indexes SPY and DIA are also strong.

Chart 5: Consumer discretionary (XLP) is the weakest sector in a strongly trending market with many indexes and sectors with CTM > 80. Technology is strongest at the moment (QQQ, XLK).  These results are consistent with the data in Chart 4 from Equal Weight funds.


Trend Check by Market Capitalization via Vanguard ETFs


Market capitalization is another way to tease apart the large number of stocks and here I use Vanguard ETFs to look at Mega Cap to Small Caps.   The recent selling has been limited to Small Caps and Mid Caps in the short-term time frame.  Large Cap and Mega Cap indexes are unaffected by the recent trading.  Value stocks which had a sharp rally in September-October have seen some profit taking. Overall, all capitalization stocks are trending higher from the medium to long term time frames.

Chart 6: The recent selling, or what there has been of it, has been confined to small stocks, and Value stocks in the Mid Cap area.  Overall, all stocks are trending higher on the medium-term and longer time frames.

 

SPX Trending Higher


The S&P 500 index is trending higher, as can been seen by the Aroon green line being well above the red line and the red line being at zero. A bit of selling is also visible over the past six days.

Chart 7: The S&P 500 index has been steadily moving higher with the Aroon red line pinned at zero.  (A live version of the chart is here.)


Intermediate-term Bonds In Down-trend Channel


The Vanguard BND Total Bond Market ETF has defined a down-trend channel and has strong support in the 80.75-81.00 area.

Chart 8: Bonds have been consolidating, and have defined a down-trend channel as they approach support.   Their intermediate- to long-term trend is still higher from Chart 2 above.

 

Post-Election Rally Rolls On

I have been tracking the post-election rally since April, and the market is firmly on track in that model. 

Chart 9: The market continues to track the post-election model I wrote about in April.

 

Looking Ahead

Head-line risks are the primary risk to the market, but the models are all trending higher.

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