Friday, December 15, 2006

Divergences At The Market Highs: What's Hot, What's Not Among ETFs

When I was putting together today's Weblog entry, I noticed that--even after Thursday's impressive rise--only 1345 stocks across the NYSE, NASDAQ, and American Exchanges had made fresh 20-day highs against 550 new lows. By comparison, on December 5th, we had 1920 new 20-day highs and only 276 new lows.

Above, I take a larger picture from August of this year to the present. The red line is the daily closing price of the S&P 500 Index (SPY). The blue line is the difference between the number of stocks across the three exchanges that are making fresh 65-day highs minus those making 65-day lows. Notice that, recently, as we've moved to new highs in SPY, the net number of stocks making new intermediate-term highs has lagged. (Props to the excellent Barchart site for the new high/low data).

So what's hot and what's not?

Most noticeably, we see that the S&P 500 large cap ETF (SPY) has made a new multi-year high. We see no such new high in the Russell 2000 small cap ETF (IWM) or the NASDAQ 100 Index fund (QQQQ). The midcap ETF (MDY) is knocking at door of new highs, but so far is lagging. In other words, we're seeing divergence based upon capitalization and market.

How about sectors?

I took a look at the 17 State Street "Spyder" ETFs to see which have made new highs since August on this recent rise. Six closed at new highs:

XES - Oil and Gas Equipment and Service
XLE - Energy
XLF - Financial
XLP - Consumer Staples
XLU - Utilities
XLY - Consumer Discretionary

Eleven sector State Street "Spyder" ETFs, however, did not make new highs on Thursday:

XBI - Biotech
XHB - Homebuilders
XLB - Materials
XLI - Industrial
XLK - Technology
XLV - Health Care
XME - Metals and Mining
XOP - Oil and Gas Exploration and Production
XPH - Pharmaceuticals
XRT - Retail
XSD - Semiconductors

While this is a mixed bag, it's clear that, overall, growth sectors are lagging value ones.

They say a rising tide lifts all boats. My research suggests that rising boats are indicative of significant rising tides. On Thursday, there were fewer rising boats than meets the eye.


Anonymous said...


Is your decision to start a "core short position" also correlated to what you're seeing with institutional buying/selling? I think the smart money is leaving the building.

Also, what do you think of shorting via one of the new trendy index funds? (I've been loading up on the QID. I like the two to one leverage)


Brett Steenbarger, Ph.D. said...

Hi Marc,

Yes, I saw buying drying up among small and mid caps and good odds of reversing much of the Thursday-early Friday move. The QID is something I'd like to look into further as a sentiment measure (relative volume of QID vs. other indices). The 2:1 leverage makes sense for someone who doesn't trade the futures, but who wants a more leveraged trade. Thanks for the comment--


Anonymous said...

Nice analysis Brett, I noticed something interesting last nite in my NHNL Breadth studies, the automotive industry was near the top in what I call NH "breadth density", almost 10% of that group made new 52 week highs yesterday, and now, as if by magic, GM appears to be breaking out as I write...


Brett Steenbarger, Ph.D. said...

Hi Ralph,

Great observation; thanks for passing along. I have also found it to be very helpful to track the individual stocks within sectors for a sense of strength/weakness.


Anonymous said...

My pleasure Brett, I mainly track breadth in individual sectors in my breadth report ->

but also do my own NHNL analysis from a breadth perspective...

Happy Holidays!