What I saw from my first long look at charts in months

I’ve kept an eye on markets whilst studying for the CFA exam but for the first time today, I was able to look at lots of charts. Here are some things that I saw. These fit the set ups defined on my methods page.

1) NYSE breadth divergence

The broad market data breadth indicators were introduced in this post. Now, there is a short term divergence between the new high in mid May of the NYSE Composite Index and the cumulative line of daily advancers minus daily decliners.

A divergence existed at the 2007 and 2000 peaks but these spanned far longer: four months in 2007 and two years in 2000. This short term divergence could get worked off but it is worth noting.

2) Momentum divergences on the iShares Consumer Services (IYC)

The iShares Consumer Services (IYC) has outperformed the S&P 500 Index during this bull market. It contains mainly consumer discretionary stocks and normally, those outperform in a bull market.

IYC versus SPX

On the monthly chart, there are now MACD and RSI divergences. The moving averages (not shown) have been in positive alignment since early 2009 when the MACD crossed above zero. Note that the sector rotation happened before the market bottomed.

With those divergences and the long time since a moving average crossover, this chart is vulnerable to reversion.

3) Bad news for CBS

The media sector has outperformed during this bull market but this is starting to change. Using my Bollinger Band method, there are lots of stocks from the health and consumer staples sectors that have based against CBS and consolidated their first move off the low.

These consolidations have tightened the Bollinger Bands to their tightest in three years and the moving averages have turned up. I now look for breaks higher on these pairs. Here is one example.

Cardinal Health (CAH) versus CBS

Try pairing other defensive stocks against CBS and you’ll find similar examples.