Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Now that we are in the third day of selling after the multi week sideways action following the big spike post ECB/Fed meetings August 3rd, let’s circle back to the cyclicals to see how they are doing. Remember, in theory, these names should be going ahead of economic improvement and are the type of names you want leading the market rather than the types we saw in latter 2011 or April-July 2012. Of course it is debatable as to “why” they are running now – most are saying due to central bank easing plans, but in the bigger picture the price action is more important than the why. Of course most would prefer for these groups to be acting well due to real reasons in the economy rather than the grand psychological experiment by central banks.
Semiconductors are probably in the worst shape – after a knee jerk reaction spike higher early in this move they have simply marked time, and appear to be rolling over a bit here. That said the SMH is still over the 20 day, and these had a huge move from the Draghi comments bottom.
Industrials and financials on the other hand are probably in the best shape – today is the first day of real weakness in these groups.
Transports were missing from this move until the middle of last week when they finally woke up. While they are weak today they are still in ok shape.
Energy has also likewise stalled the past few weeks after that Draghi inspired run.
Metals and mining enjoyed a very strong morning yesterday before reversing part of those gains during the afternoon reversal. This group is still in decent shape.
I would normally throw technology into this look but frankly at this point all the major ETFs (XLK, QQQ) are so dominated by Apple that trying to analyze their movement is useless.
So overall, there has not been much secondary momentum out of the semiconductors, energy, and technology in general (ex glamour stocks). Transports was the late horse to the rally, while financials, industrials, and metals/mining have carried the flag much better with their secondary moves, showing sustained momentum. However, none of these groups even has a RSI of 65 yet and most are not even over 60. Very different than January-March 2012 in that regard. What this is saying about the world economy or the magic of central banks is up for interpretation.
Speaking of, we have FOMC minutes coming at 2 PM. Remember this meeting was before the (relative) improvement in data seen of late but it won’t stop financial infotainment media from trying to analyze every phrase. With Jackson Hole next week I don’t know if it matters much anyhow.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
