Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Relative Strength Today

Stock-Markets / Stock Markets 2012 Jul 17, 2012 - 06:41 AM GMT

By: Submissions

Stock-Markets

Best Financial Markets Analysis ArticleEd Carlson writes: Certain sectors of the market are known as being market leaders; financials, technology, small caps, etc. Technicians have long-known that without participation by those “market leaders”, rallies in the broader averages won’t be able to sustain themselves. Others, often called defensive sectors, are said to “outperform” in a down market; utilities, healthcare, consumer staples, etc. The term “outperform” should not be equated with “profitable”. It simply means these sectors will do better than others in a particular environment (bull or bear market). Knowing which groups are outperforming gives us an important clue as to which direction the broader market is headed. So how can we tell which sectors are outperforming? Ratio Charts.


Ratio charts are created by simply dividing the data of one sector by a broader average such as the S&P 500. Place the charting data of the sector-of-interest in the numerator and the S&P 500 in the denominator. When the resulting line chart is rising, it means the sector being examined is outperforming the broad market. When the line chart is falling, it means that sector is underperforming. So what are Ratio charts telling us now?

If we believe current market action in the broad averages is bullish we should expect our ‘market leader’ ratio charts to be advancing. Looking at the ratio chart between semiconductors and SPX we find (even with last Friday’s rally) the line chart continues to make new lows; bearish.  Ratio charts also lend themselves to the standard techniques of technical analysis. Here we see that the SOX/SPX ratio has broken the long-term support line. Long before that, however, it showed a negative divergence earlier this year foreshadowing the April – June decline just as it did in early 2011. This sort of market action for an important leader like semiconductors makes it difficult to be bullish on the broad equity market.

Taking a look at the S&P Healthcare index (a defensive sector) versus SPX we can see how this sector underperformed (trended down) during the October – April advance in the S&P 500 just as we would expect it to during a market rally. We can also see how it turned upward at the April top in the S&P 500 and broke out from a descending trend channel. It has even been outperforming during the post-June advance! A simple measured move from the breakout implies that outperformance in healthcare still has a big move ahead. 

Similar situations are seen in other ratio charts. These charts seem to be saying that any rally from last Friday will be short-lived. Until we see leaders like technology start to outperform, it’s probably a good bet that the July downtrend is still alive and well.

Ed Carlson, author of George Lindsay and the Art of Technical Analysis, is an independent trader, consultant, and Chartered Market Technician (CMT) based in Seattle. Carlson is an instructor at the New York Institute of Finance, hosts the MTA Podcast Series, and manages the website Seattle Technical Advisors.com, where he publishes daily and weekly commentary. He spent twenty years as a stockbroker and holds an M.B.A. from Wichita State University.

© 2012 Copyright Ed Carlson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in