The consumer staples sector has been one of the strongest sector during the past three months. The performance chart below shows 9 stocks in this group during this period. They clearly outperform the S&P 500, shown on the right.
There are three daily charts below of three different breadth indicators. These three indicators don’t seem to support a possible upside breakout in the near future. First let’s start with $SPXA50R. This breadth indicator tells us the percentage of S&P 500 stocks Above their 50-day Moving Average. You can read more about this breadth indicator here. This indicator has been moving lower creating a bearish divergence. Over 40% of the stocks in the S&P 500 are below their 50-day moving average. See the chart below.
This next chart shows $BPSPX, the S&P 500 Bullish Percent Index. $BPSPX is a breadth indicator showing the percentage of S&P 500 stocks with Point and Figure buy signals. A Point and Figure chart either gives buy signal or sell signal. Read more about $BPSPX here. Over 30% of the S&P 500 stocks are on a P&F sell signal. See the Chart below.
The third chart shows the NYSE McClellan Oscillator, $NYMO. This breadth indicator is calculated from the Net Advances on the New York Stock Exchange. Net Advances are the number of Advancing Issues less the number of Declining Issues. You can read more about $NYMO here. $NYMO has been pretty flat since March, not showing much enthusiasm among buyers or sellers.
Both the Bollinger Bands (gold) and Keltner Channels (purple) are trend following indicators with a volatility based envelope as you can see on the 60-minute chart below of SPY, the S&P 500 ETF. They are trend following because the directions of the Bollinger Bands are dictated by the 20-period SMA (Simple Moving Average) and the directions of the Keltner Channels follow the 20-period EMA (Exponential Moving Average). The bands for the Bollinger bands are a multiplier times the Standard Deviation above and below the 20-period SMA. The channels for the Keltner Channels are a multiplier times the ATR (Average True Range) above and below the 20-period EMA. The multiplier is usually 2 for both the Bollinger Bands and Keltner Channels. Since the Standard Deviation is “more volatile” than the ATR as you can see on the 60-minute chart below The Bollinger Bands cover a wider range, often the Keltner Channels are within the Bollinger Bands. For this reason some traders prefer the Keltner Channels over the Bollinger Bands. Another reason is that the 20-period EMA is more sensitive than the 20-period SMA. On the chart below both moving averages turned down and the price is below these moving averages, which is short-term bearish.
The Chaikin Oscillator measures the momentum of the Accumulation Distribution Line. The calculation is similar to the calculation of MACD but instead of the price it uses the Accumulation Distribution Line. It is an indicator of an indicator. The Chaikin Oscillator is the difference of the 3-period EMA and the 10-period EMA of the Accumulation Distribution Line. Similar to other momentum indicators, it is designed to anticipate directional change in the trend as momentum change usually precedes trend change. The calculation uses both the price and volume since it is based on the Accumulation Distribution Line. The Chaikin Oscillator gives buy/sell signals by bullish/bearish divergences and centerline crossovers. The chart below shows the weekly chart for SPY, the S&P 500 ETF with the Chaikin Oscillator in the indicator window (the chart also shows the 20-period Price Channels). There was a noticeable bearish divergence since last year Novermber and the Chaikin Oscillator finally crossed below zero at the end of March. That is considered a sell signal according the Chaikin Oscillator. The Accumulation Distribution Line is falling and selling pressure dominates.
There are 9 daily charts below showing the 9 sectors of the S&P 500 during the past 2 months. Below each chart the 25-period Aroon trend indicator is shown. For the Consumer Staples, Energy and Utilities sectors Aroon Up is above Aroon Down and it is over 95. For the other 6 sectors Aroon Up is below Aroon Down and less than 50. The charts below clearly show the strength of the defensive sectors and the weakness of the offensive sectors such as Cyclicals, Financials and Technology.
The monthly chart below shows SPY, the S&P 500 ETF with two indicators, RSI above the chart and PPO below the chart. RSI is overbought and there is a slight divergence, it has been moving lower while SPY was moving higher. PPO(1,120) tells us the price difference in percentage between the 1- period EMA and the 120-period EMA (10 years). The 1-month EMA is 53.698% higher than the 120-month EMA. PPO(1,120) has reached extreme levels, higher than back in 2007. Also notice that there is a slight divergence here too, PPO(1,120) failed to reach new highs.
A couple of things I want to briefly note about the weekly chart. RSI was overbought and has been moving lower since the beginning of this year even though SPY had higher highs. MACD is still below the signal line and the signal line is moving lower. ATR has been moving higher since the beginning of the year even though SPY has basically stalled.
XLY and XLP are two sector ETFs of the S&P 500. XLY is representing the consumer discretionary sector and XLP representing the consumer staples sector. XLY is considered an offensive sector and XLP a defensive sector. In a healthy, growing economy investors take more risk and money flows in into offensive sectors such as the consumer discretionary sector. For this reason when XLY outperforms XLP it is bullish for the market. The chart below shows the XLY:XLP ratio and as you can see for the most part it was trending higher during the time period shown. On this chart you can see SPY, the S&P 500 ETF too for reference. The indicator window shows the correlation between this ratio and SPY. The correlation is close and stays above 0.50 most of the time. The recent sharp decline of this ratio since March put the correlation coefficient near zero. The sharp decline of the XLY:XLP ratio is just another way to visualize the recent sector rotation. We know that the correlation coefficient is going to move back above 0.50 in the near future. There are two scenarios, either the XLY:XLP ratio is going to turn up or SPY, the market is going to follow the ratio lower. The market won’t able to move higher without the support of the consumer discretionary sector.
The Chandelier Exit can be used to set your trailing stop-loss during an uptrend or during a downtrend. You can read more about the Chandelier Exit here. Normally during an uptrend the Chandelier Exit is placed 3 ATR (Average True Range) below the 22-period high and during a downtrend it is placed 3 ATR above the 22-period low. The Chandelier Exit changes with new highs or lows and changes in volatility (ATR). It can prevent the trader from an early exit of a long or short position. During an uptrend a break below the Chandelier Exit can signal weakness or the end of an uptrend. The daily chart below shows SPY, the S&P 500 ETF with the Chandelier Exit. Currently it closed below the Chandelier Exit.