Stocks broadly declined yesterday, although the Dow (DIA) fared slightly better than the other indices. Only declining 0.71% in yesterday’s session—versus a 0.98% decline in the S&P 500 (SPY) and 1.72% loss for the Nasdaq (QQQ)—DIA is now the only major index ETF that is still overbought and the only one to be up from this time last week. All of the other index ETFs have fallen off of overbought levels from the past few weeks and currently sit at neutral. Granted, most of this movement still leaves the ETFs on the border of neutral/overbought so it will not take much upside for a return to overbought. With this fall to neutral, all of these ETFs are also down over the past five days with losses ranging from a very small 1 bp decline for the Core S&P 500 (IVV) to a much more substantial 1.86% loss for the Russell 2000 (IWM). IWM is not alone in large losses though as other small and mid caps also have lost over 1%, also bringing them below the 50-DMA as well. Start a two-week free trial to Bespoke Institutional to access our interactive Trend Analyzer and much more.
Recently, there has been a steady rotation into more defensive sectors, but in the past week this picture has become more mixed as the distinction between cyclical/counter-cyclical performance has muddied. The second best performing sector this year has been Real Estate (XLRE) with better than a 20% gain YTD but in the past week, XLRE has underperformed dramatically losing 1.72%. After sitting at extremely overbought levels last week, it has fallen sharply in its trading range and is now neutral like six other sectors. While no other sector experienced quite as large of a decline, there are four other sectors (all cyclicals) that are lower versus last week including Financials (XLF), Communication Services (XLC), Consumer Discretionary (XLY), and Technology (XLK). Each of these also sits in neutral territory along with Industrials (XLI) and Energy (XLE). XLE has been the only sector ETF to sit below the 50-DMA recently, and given this more oversold level, the sector has begun to be bought up rising 1.1% in the past week. While XLRE has fallen, there is a disconnect with other defensives—Utilities (XLU), Staples (XLP), and Health Care (XLV)—which have done well. XLU, XLP, and XLV in addition to Materials (XLB) have all outperformed the other sectors in the past week. Additionally, these four are the only sectors that have become overbought with XLV sitting just below extreme levels.