After a rough week of market action, hiding was difficult as the trade brush painted everything with the same colour - red. Every sector was in trouble, but the growth sectors were the weakest.
While the market weakness may have surprised a few, this is now the third straight week that the defensive sectors drove the leadership. The chart below shows the sector performance over the last three weeks. The right side of the chart hosts the defensive sectors and the left side of the chart has the growth sectors. In the bottom right hand corner, you can see the 15-day date range. Notice the dates in the top left under the legend.
Last week saw the transports getting beaten up, with trucking in particular having a terrible week. The upper panel shows trucking continuing to underperform the overall market.
Trucking is one of the areas that is showing a lower high compared to the February high. The lower high looks locked in place, as the index briefly made 4-month lows on Friday. The outlook from the trucking CEOs continues to be one of lower freight volumes.
Airlines made a marginally higher high, but are now back at the 200-day moving average. With the ongoing 737 Max issues, I am surprised to see the airline chart as stable as it is. Notice the volume peaks have been declining since January, meaning it doesn't appear to be fostering wide demand.
The railroads have continued to be the top performers. When this chart breaks, that will be a big concern. Notice the October break and the similar setup here. The railroad has also seen a continued decline in volume. The tall volume in March is the Quarterly Options Expiration day.
I covered off the transport charts on this week's video. I think the transports will be one area to watch for trade tensions. You can bookmark this link to the StockCharts YouTube channel. The weekly Market Roundup video is posted on Saturdays, so you can find it there Saturday evening.
In other news, the Nasdaq has broken the relative strength uptrend for the first time since the rally started. That is not a definitive start to a market rollover, but, when the technology stocks underperform, it is usually part of the mix. With the defensive areas leading the market (as shown in the first chart), that is a concern.
I continue to be worried about the historical setup on the indexes in terms of breadth. I have discussed the breadth issues many times here, but they continue to have a similar setup to past major market tops. The Nasdaq Composite is setup similarly to 2002, 2007 and 2015.
Here is the New York stock market breadth.
I read my good friend Arthur Hill's work on the weekend and he does not use these charts for breadth. Once again, I think these charts break before the $SPX and $NDX, so I like them as an advance warning system.
On the video, I showed a lot of charts, but the Copper chart is one you can use to help with your opinion this week. I have many charts set up similarly to the important highs in the market. I'll let you decide if this Copper chart is another.
For the week ahead, I continue to think the best clues about a global market top will be watching the weaker markets (Germany, Japan and China) break down first. I mentioned what it would take to get me bullish on these foreign markets on the video, but Germany looks like a classic bear market rally. I wouldn't want it to break below 12000, but I have drawn the horizontal line here at 11750.
The $NIKK looks like a topping structure to me. I need it to hold above 21000, but it dropped 1000 points last week.
The Shanghai chart is making a lower high. No annotations needed. Until momentum improves, this chart looks lower. The China bank was supporting stocks on Friday, apparently.
My opinion is that you should stay cautious. I am not nearly as bullish as other technicians. It's a good week to get a wide range of views.
Good trading,
Greg Schnell, CMT, MFTA
Senior Technical Analyst, StockCharts.com
Author, Stock Charts For Dummies
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