FINANCIAL ICEBERG
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MARKET INSIGHT
SP500 , Dow Jones Industrials and their friends : Market Fatigue ? Early Warning Signs ?
( FRED, Barchart , Safe Haven )
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Dow Jones Industrials ( Right Scale )
​S&P 500 Index ( Left Scale )
RATIO
​Dow Jones Industrials
​S&P 500 Index
Dow Jones Industrials ( Right Scale )
Dow Jones Transport ( Left Scale )
RATIO
​Dow Jones Industrials
Dow Jones Transport
S&P 500 Index ( Right Scale )
​S&P 500 Consumer Discretionary Index ( Left Scale )
From time to time, it is very interesting to try to detect market reversal comparing the Mighty Dow Jones Industrials to his partner, the Dow Jones Transport and smaller capitalization ( Russell 2000 and S&P Smallcap 600 ​Index,  Microcap ETF Wilshire (WMCR) ), and other interesting ratios that you re probably never seen before ! We ll go through eight different factors that we think can reversal signs for the stock market...

We ll do it with graphs on two different time intervals​​, one for a macro view of 15 years and the other on a shorter time frame of 6 months.


Let s start with the Dow theory :

​..."In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. To Dow, a bull market in industrials (INDU) could not occur unless the railway average rallied as well (TRAN), usually first. According to this logic, if manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air."..
On the graphs above, we can see that the Dow Transport Index did follow the trend of theDow Jones Industrials Index.

And on a ratio basis, we can observe on the graph below, that the Transport Index did outperform the Industrials lately...
According to that, bull market intact...​​​
The other analysis below will be the still Mighty Dow Jones Industrials to the SP500 Index.

And on a ratio basis, we can observe on the graph below, that the Dow Jones Industrials did underperform the SP500 lately...
According to that, bull market intact...​​​
​​
Next step will be to check the liquidity risk/growth risk that the market is willing to take.

Let s start with and compare the SP500 to the Russell 2000 Index below...

​​​
We can see that the Russell did outperform the SP500...​
​According to that, bull market intact...
S&P 500 Index ( Right Scale )
​Russell 2000 ( Left Scale )
S&P 500 Index ( Right Scale )
​S&P Smallcap 600 ​Index ( Left Scale )
S&P 500 Index ( Right Scale )
​Microcap ETF Wilshire (WMCR) ( Left Scale )
Now compare the SP500 to the ​S&P Smallcap 600 ​Index below...
​​​
We can see that the  ​S&P Smallcap 600 ​Index did outperform the SP500...​
​According to that, bull market intact...
Now compare the SP500 to the ​ ​Microcap ETF Wilshire (WMCR) Index below...
​​​
We can see that the Microcap ETF Wilshire (WMCR) ​ ​Index did undererform tremendously the SP500...​
​According to that, bears are awakening...
Now compare the SP500 to the ​ ​S&P 500 Consumer Discretionary​ Index below... To have a sense of consumers valuation...
​​​
We can see that the ​ ​S&P 500 Consumer Discretionary ​Index did outperform the SP500...​
​According to that, bull market still intact...
Now compare the SP500 to the ​ S&P 500 Information Technology Index below... To have a sense of the new economy valuation...
​​​
We can see that the ​ S&P 500 Information Technology  ​Index did underperform terribly bad vs the SP500...​
​According to that, bears trend...
S&P 500 Indexs ( Right Scale )
​S&P 500 Information Technology Index ( Left Scale )
So for a summary :

                                                                                                                  Bull                         Bear

Dow Theory                                                                                                1
​​​​Dow Jones Industrials  VS Dow Jones Transport                                     

Old Economy VS New Economy                                                                1
​Dow Jones Industrials VS S&P 500 Index                                                  

Liquidity/ Growth​​                                                                                         1
​S&P 500 Index VS  Russell 2000                                                              
​S&P500 Index  VS   ​S&P Smallcap 600 ​Index                                          
​S&P 500 Index VS  Microcap ETF Wilshire (WMCR)                                

​​Consumers                                                                                                  1
​S&P 500 Indexs  VS ​S&P 500 Consumer Discretionary Index                  

​Technology VS Regular Economy

​S&P 500 Index VS ​S&P 500 Information Technology Index                                                        1      

Financials
​​​
S&P 500 Index VS ​S&P Financials Index                                                                                    1

Commodities
S&P 500 Index VS S&P 500 GSCI Index                                                                                     1
​​​

Emerging Markets​
​S&P 500 Index VS ​S&P 40 BRIC Index                                                                                       1

S&P 500 Indexs ( Right Scale )
​S&P 500 GSCI Index ( Left Scale )
S&P 500 Index ( Right Scale )
​S&P 40 BRIC Index ( Left Scale )
 S&P 500 Index ( Right Scale )
​S&P Financials Index ( Left Scale )
The other analysis will be the still  SP500 to the SP Financials Index.

We can observe on the graph below, that the Financials did underperform the SP500 lately...
According to that, a warning sign ?...​​​
Now compare the SP500 to the ​ S&P GSCI Index below... To have a sense of the demand for basic resources...
​​​
We can see that the ​ S&P GSCI ​Index did underperform tremendouly vs the SP500...​
​According to that, bears are aggressive...
And finally, let s compare the SP500 to the ​ S&P40 BRIC Index below... To have a sense of the world trend in equities for emerging economies...
​​​
We can see that the ​ S&P40 BRIC ​Index did underperform very badly vs the SP500...​
​According to that, bears awakening...
Conclusion

Even if we have equal count of bull/bears factors,the underperformance of Commodities and Emerging Markets are a little bit worrisome...
We need only one more factor changing direction to confirm the bear case... Maybe the liquidity/growth indicator ?

Stay tuned...​​