Willie Delwiche & Current Market Trends
On Monday, Baird Strategist Willie Delwiche gave his thoughts on where we currently stand in the market. What I love about Willie's approach is that it's very straight-forward, in that it's mainly just a bunch of charts. And as we know, charts speak a thousand words. He covers all eleven sectors and many sub-industries in his breakdown, listing the areas he believes are showing the most strength.
One of the first things Willie points out is that nine of the eleven sectors are represented on his Relative Strength Leaders list. The only two not included were Consumer Staples and Financials. Further, he brings to our attention that the breadth among sub-industries has remained strong, coming off the lowest level we had seen since early 2016. However, according to Willie, until we get a correction, even if short-lived, it's hard to determine the true strength of the recent rally off the December lows.
One important take away from Willie's Relative Strength Heat Map is that Semiconductors/Semiconductor Equipment ranked a perfect 4-0, with improving strength against the S&P 400, 500, and 600 indices. While he does not supply a chart of this relationship, I have posted one below.
Based on the recent rally, combined with the facts that a.) we are back above a significant area of support and b.) RSI saw a strong trend upwards during the basing period, I do believe the strength here can continue.
Willie also lists his Relative Strength Rankings, and I think there are some key messages in the data, which I have highlighted in red.
First, I think it's a great sign to see Consumer Staples with zero sub-industries listed as "improving" and five listed as "deteriorating". Since this is typically viewed as a defensive sector, we want to see it lagging against more aggressive, riskier sectors. Second, the largest upward move in the rankings (three spots) came from the Industrials sector. If you are a believer in Dow Theory, then this is a positive development. This sector also has five sub-industries listed as "improving" and none that are deteriorating, according to Willie's interpretations. Again, a positive sign.
In closing, I agree with Willie's sentiment that "Sector-level trends have surged, providing evidence of broad participation in the rally." While the upward moves we have seen have been very sudden (across both the major indices and their individual components), the participation is broad and thus breadth is healthy. On nearly each sector he listed, Momentum did seem to be close to "maxed out". It will be hard for the market to sustain the pace it has been on, but that does not take away from the fact that there is clearly strength in multiple pockets.