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Chart Advisor

By C. Theodore Hicks II, CFP®, CKA®, CMT®

1/ Strong Close

2/ Everyone Is Participating

3/ Significantly Higher

4/ Dr. Copper

Investopedia is partnering with CMT Association on this newsletter. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services.

Strong Close

Courtesy of Optuma

On the left, we have the daily candle chart for SPY, one of the S&P 500 ETFs. On the right, we have its 5-minute candle chart. The shaded box represents the actual trading hours of 9:30 to 4:00 eastern.

While Wednesday’s trading session turned sour shortly after lunch, Thursday was just the opposite.

For the uninitiated, the bottom of a white candle’s body represents the opening price. The top of the white candle’s body represents the close. The upper and lower wicks represent the extent of the day’s range. So, for Thursday, we can see that the S&P 500 opened the day higher than Wednesday’s close. However, the bears dominated the first three hours of trading. But, as you can see on the 5-minute chart, the bulls showed up after lunch and the index rallied strong all the way into the close.

Such a reversal is a nice sign. It suggests that it is possible that the downside pressure we saw on Wednesday will be contained to Wednesday. If so, if Friday’s trading session is flat or positive, we will close out an eighth week in a row of gains.

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Everyone Is Participating

Courtesy of Optuma

The top pane of our second chart is the iShares Russell 3000. The bottom panes are showing the number of advancing stocks (green bars) and declining stocks (red bars) within the Russell 3000.

Take a look at Wednesday’s bars and then compare them to Thursday’s bars. On Wednesday, there were very few stocks advancing - the green bar for the day is almost non-existent. Conversely, just about all of the Russell 3000 stocks were declining. On Thursday, it was just the opposite.

The broad market has run up so much that just about every stock needed to take a breather. But the very next day, it was back to work.

Significantly Higher

Courtesy of Optuma

Earlier this week, I pointed out that small company stocks have been leading the charge since this latest rally began on November 1st. Chart 3 is a Seasonality Chart for the S&P Small Cap 600 Index. This is showing us the average monthly performance for the S&P Small Cap 600 since 1950 by month. Note the blue dot on the right hand side. This blue dot is representing the performance for the S&P Small Cap 600 for the current month.

This month’s performance is significantly higher than the average December!

While I like Small Cap’s chances in the months ahead, in some measure because they have struggled for so long, I also am very aware of how the average January is not very robust for small company stocks.

Dr. Copper

Courtesy of Optuma

However, a review of a simple comparison chart for the equal-weight sector ETFs since November 1st reveals something that I did not expect. I fully expected RSPT to be at the top of this list. However, it is the equal-weight consumer discretionary sector that tops this chart.

This is why it is imperative to check your assumptions at the door. Check the data and proceed accordingly.

Acts 17:11

About This Week's Author

Theodore Hicks, CMT is the Founder and Chief Investment Officer for Hicks & Associates Wealth Management, an SEC Registered Investment Adviser. Hicks and his team manage money for families and retail clients using a proprietary, multi-strategy investment process through a rules-based framework. Since most of their clients are either near or already in retirement, the process is designed to minimize downside risk. Hicks frequently posts charts and his thoughts to his LinkedIn and Twitter accounts.

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