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The PerfChart below shows a selection of intermarket related ETFs. Notice that the Commodity Index Fund (DBC), Base Metals ETF (DBB) and Gold SPDR (GLD) are up substantially year-to-date, as are stocks. In contrast, the Dollar and Treasury ETFs are down. Money is embracing risk this year.
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The stock market is clearly in rally mode this year with the offensive sectors leading the charge. Notice that the consumer discretionary, industrials, finance and technology sectors are outperforming the S&P 500. In contrast, the consumer staples, healthcare and utilities sectors, which are defensive, are lagging the S&P 500.
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According to the Wall Street Journal, "Caterpillar’s 20% stock surge this month contributed nearly 34% of the Dow Jones Industrial Average’s 415-point advance." As a price weighted "average" the highest priced issues in the Dow carry the most weight. This is also true for the Dow Transports and Dow Utilities.
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The PerfChart below shows six intermarket related ETFs. The S&P 500 ETF (SPY), US Oil Fund (USO) and Gold SPDR (GLD) are positively correlated as all show gains in 2012. In an interesting twist, the Euro Currency Trust (FXE) and the S&P 500 ETF (SPY) are negatively correlated in 2012. SPY is up and FXE is down. Will this negative correlation last?
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The US Dollar Fund (UUP) broke above its October high and is closing in on a 52-week high this month. With higher highs in September, December and January, the trend here is clearly up. The Commodity Index Fund ($DBC) is not happy though. Notice that this ETF peaked in May and moved lower the last 7-8 months.
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With a surge in late December, the Dow Transports is once again challenging resistance from the October highs. Notice that the Average failed at this level in early December. The Dow Industrials is also hitting resistance near the October high. Breakouts in both would be bullish according to Dow Theory.
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With a downturn in the stock market this week, the NYSE Summation Index ($NYSI) turned back down and broke below its 5-day EMA. This shows that breadth is deteriorating once again. The McClellan Oscillator also turned negative. Note that the Summation Index is a cumulative measure of the McClellan Oscillator. The Summation Index rises when the oscillator is positive and falls when the oscillator is negative.
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Top ten lists for the StockCharts Technical Rank (SCTR) can now be found on the home page (scroll down). Merck (MRK) stands out from the list of stocks with the biggest SCTR change. The SCTR jumped 12.4 as the stock broke flag resistance and challenged its 2011 highs.
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The PerfChart below shows the performance for five intermarket ETFs. The Gold SPDR (GLD) and the US Oil Fund (USO) sport the biggest gains and are clearly leading the group. The 20+ year Bond ETF (TLT) and US Dollar Fund (UUP) have the smallest gains and are lagging. Such relative strength in oil bodes well for energy related shares.
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Chartists can measure the market’s risk tolerance by comparing the simple line charts for four ETFs. The S&P 500 ETF (SPY) and US Oil Fund (USO) rise when risk is “on”, while the 20+ year Bond ETF (TLT) and US Dollar Fund (UUP) rise when risk is “off”, Notice how the market moved from risk-off in September to risk on in October. SPY and USO bottomed and surged as TLT and UUP peaked and plunged.
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