Some Divergences Are Emerging

Not much changed in the market on Friday. Sentiment didn’t change. The number of stocks making new highs did not increase. Bonds did not rally on a poor retail sales number. And the market remains overbought.

What did catch my eye is that, for the first time since the lows in late March, (XLE), an ETF to be long energy stocks, made a higher high. Oh, don’t worry, it’s still a smidge under the peak back in late March so the change is subtle, but it is a change.

The reason it caught my eye was, sure, it made a higher high, but look at WTI itself: at 82 it is far from the high it made in March. Heck, it’s far from the high it made in late July at 92. I have no strong view on oil itself these days. The Daily Sentiment Indicator (DSI) sits at 77, which leans on the high side of neutral but there’s nothing more to say on that front.

Even when I look at the ratio of (OIH) to (XLE) I don’t see much to get excited over. It’s pretty neutral as well. XLE is probably short-term overbought up here (despite the mini breakout) so I will keep an eye on that downtrend line on the chart of WTI because that has not been breached since the March lows in the S&P so if that changes, then something has changed in the market.

Away from that, some other observations I have are to do with interest rates. So far, the Homies, as represented by the ETF (ITB), have not collapsed. I don’t love the chart since it looks like a coin toss to me, but it is worth noting that a group very sensitive to interest rates is — for now — diverging.

And — again, for now — so are the Utes. By now you know I think the Utes are trying to bottom. They had a nice bounce last week (+2%). I still want to see a W formation on the chart, but as I’ve been noting for a week now, I’d nibble on them. In any event, this interest-rate sensitive group is also diverging.

Finally, I heard a gentleman on financial television late last week. He was bullish. He was asked to say what groups he was bullish on. I swear, I think he listed every group out there. The host must have thought the same because the host then asked: Is there anything you don’t like? The man answered: staples.

So, I looked at the chart of (XLP), to own the staples. It looks OK to me. It’s been in an uptrend since November.

The bottom line is that not much changed in the market last week, but there are small divergences taking place. There is complacency everywhere. Maybe it’s just because it’s August!