DDM DIA DOG DXD EEH EPS EQL FEX FWDD Games Hale Stewart HUSV IVV IWL IWM JHML JKD OTPIX PSQ QID QLD QQEW QQQ QQQE QQXT RSP RWM RYARX RYRSX SCAP SCHX SDOW SDS SFLA SH SMLL SPDN SPLX SPUU SPXE SPXL SPXN SPXS SPXT SPXU SPXV SPY SQQQ SRTY SSO SYE TNA TQQQ TWM TZA UDOW UDPIX UPRO URTY UWM VFINX VOO VTWO VV

Technically Speaking: Year-End Edition | Seeking Alpha

Hale Stewart

Usually, originally of this collection, I add some commentary concerning the financial system. I’ll skip that at the moment and easily take a look at the indexes and industries to see the place we’re ending the yr.

Let’s begin with a year-end efficiency of the key indexes:

On the prime – in constructive territory – are the Treasury market ETFs. The two-10 yr part (the “belly of the curve”) was modestly larger. The 10-20 yr space was down fractionally, whereas the long-end of the curve was down 2%. Then, we have now the larger-cap indexes – DIA, OEF, and SPY. These have been down modestly on the yr. The actual injury occurred within the mid- and small-caps; mid-caps misplaced just a little greater than 12%; small-caps have been down about 12%; and micro-caps declined almost 14%. This desk exhibits that buyers are taking a much more conservative orientation to their investments at year-end.

Right here is the yearly efficiency of the most important sector ETFs:The 2 prime performers are defensive points: healthcare and utilities. Shopper discretionary was up modestly. Then we begin to see declines. Know-how was down marginally; actual property’s losses have been barely bigger. Power – which dropped in tandem with the oil’s fourth-quarter worth collapse – was the worst performer. Industrials and primary supplies (two sectors which aren’t solely early cycle industries however are additionally disproportionately affected by the commerce wars) are the second and third worst performers, respectively.

Subsequent, let us take a look at the relative power graph of the main industries:I’ve used lengthy tails within the evaluation. Discover the distinctively defensive nature of the main and lagging sectors. Utilities, staples, healthcare, and actual property are main SPY; industrials, know-how, discretionary, and power are lagging. This merely confirms what we have been seeing above: merchants and buyers at the moment are much more defensive.

Let’s dig into the market’s internals, beginning with the Nasdaq’s:

The share of shares above their 200-day EMA is under 15%…

…as is the % of Nasdaq shares under their 50-day EMA.

We see comparable percentages for the NYSE:

Barely greater than 15% of NYSE shares are above their 200-day EMA…

…whereas barely lower than 15% of shares are under their 50-day EMAs.

There are a number of methods to interpret these charts. On one hand, they present a really oversold market. If we have been in a bull market, this knowledge would level in the direction of a “buy the dip” suggestion. But when market sentiment is bearish – which we’re quick approaching – it might additionally imply we should always anticipate costs to coalesce at decrease ranges.

Regardless of low breadth, the market stays overvalued:The “Buffett indicator,” which measures the market capitalization of equities relative to GDP, is 10% under its excessive from the dot.com bubble of the late 1990s.Different measures additionally present an overvalued market.The extra conventional PE ratio is a bit decrease and nearer to historic averages.

To date we have established that the market – whereas oversold – continues to be costly by numerous valuation measures. Let’s add a couple of charts, beginning with the weekly IWM:

IWM broke long-term help in 2H18. Costs at the moment are under the 200-week EMA and at the moment are resting on the 50% Fib degree.

QQQ has additionally damaged help, however it’s about its 200-week EMA. Costs are presently sitting on the 61.eight% Fib degree. Lastly, we’ve SPY’s weekly chart:

This has far more in widespread with QQQ. Nevertheless, the hot button is that it has nonetheless damaged help.

Lastly, let’s toss the yearly sector ETF charts in for good measure:

Just one sector – utilities – is in an uptrend. All others are at or close to yearly lows. Momentum is weak throughout the board.

Let’s sum up: the market is technically weak. The main averages have damaged multi-year developments and at the moment are looking for technical help at numerous ranges. Whereas breadth is weak, the general bearish market tone means a robust rebound in all probability is not doubtless. Regardless of the sell-off within the 2H18, the market continues to be overvalued, which suggests we might now be experiencing a return to extra “normal” or decrease valuations. Lastly, excluding the utility sector, all of the business sectors are at 52-week lows and in a technically weak place.

Disclosure: I/we now have no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Seeking Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

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