More importantly, all the major indices failed – once again – to reach above their respective ceilings. The longer the bulls wait, the tougher it becomes to hold the market up. More details are below.
The Bigger Picture
Economically speaking, consumers, employers, and businesses did their part to help the market…. for the most part. Consumer credit levels didn’t shrink as much as originally expected (though they still shrank), retail sales were better than October’s (surprise surprise), the employment scenario got a hair better, and inventories grew instead of shrinking (which is a mixed message). The numbers are still in the ‘less bad’ area, but it beats the alternative. Take a look.
That said, the exhausted market needs something special from the economy if it’s going to move higher directly from here. The rise between March and October was founded on ever-improving economic numbers. Now that the year-over-year and month-over-month numbers are just so-so, the momentum has clearly faded. That’s why the indices are still roughly where they were about two months ago.
That’s the bigger picture anyway, but what about the near-term?
The SPX remains one of the most interesting and more telling market barometers we keep tabs on. The support and resistance arcs (red) we brought up more than a month ago now? They’re still in play. The upper one’s still at 1119, where the S&P 500 peaked two weeks ago. The lower one’s at 1040, where we expect the SPX to ultimately revisit before finally punching above the ceiling.
Normally, the CBOE Volatility Index might help us get a feel for where things are headed. After its peak in early November though – at the upper 20-day Bollinger band – we’ve just watched the VIX wind its way into a very narrow support/resistance zone.
We’re still using the Bollinger bands at 20.0 and 24.5 as support and resistance levels, and as you can see, they’re closing in on the VIX fast (yet neither’s been touched since early November). The constriction should ultimately act as a slingshot when the time comes. Right now though, even the VIX is hung up.
On the other hand, take a step back and look at multi-month view…slowly but surely, the momentum is waning for the market, and the VIX is not pushing lower any more. It hasn’t meant anything yet, but it’s a major, subtle shift. We’ll be looking at that more in the future, we’re sure.
Dow Jones Industrial Average
There’s not a lot more to add about the Dow that we didn’t say about the S&P 500, except this – horizontal resistance around 10,540. That was the high point two weeks ago, and not even last week’s high. It was also the peak area from three weeks ago. Three weeks of the same basic problem? Yeah, we can call it a ceiling. Until that level’s broken, there’s nothing to get excited about here.
On the flipside, the Dow Jones Industrial Average still has rising support at 9970 to look forward to.
Emerging Sectors, Regions
Normally from one week to the next, it’s not unusual to see different sectors or different geopolitical markets do better than others. Most of the time, the relative leadership is temporary and meaningless. This past week though, a handful of trends emerged that can no longer be dismissed as just a little volatility.
On the sector front, the only two groups that did any good at all last week were utilities and telecom. As is just so happens, those are also the only two groups with decent returns for the last four weeks. Oh, and those two sectors are by far the worst performers – in a huge way – over the last 52 weeks.
If it were just one or even two of those tidbits, it may mean nothing. To see such a (1) drastic, (2) persistent, and (3) against-the-grain turn of fortune though, we have to consider this a major sector rotation that could yield trade-worthy trends. Utilities and telecom have a ton of room to play ‘catch up’.
As for regions, it’s time to tap into Indonesia and Panama… and perhaps Chile. They all lead the regional race over the last one-week, one-month, and three-month timeframes. Other leaders for one or two timeframes are peppered in, but these three areas are consistently in the top five for all the near-term timeframes.
Good luck finding a way to invest in Panama… no ETFs, and very few stocks. There are a variety of liquid investment venues for Chile and Indonesia though.
Disclosure: No positions.