A couple of years ago, Tom McClellan conducted a study of the impact decimalization had upon breadth data which resulted in the accumulation of a few years worth of daily price and volume data of every issue traded on the NYSE. Tom then came up with an idea of using those daily NYSE files for the purpose of breaking down the NYSE issues into various categories including common only stocks (NYA members), ETFs, preferred stocks, bond CEFs, as well as other categories.
Tom's idea resulted in a collaborative project of developing a software application to process the NYSE files by sorting each NYSE component into the various categories, then derive several breadth, volume, and price entities for each of those categories. After six months of laboring, the first phase of processing the daily files from November, 2001 has been completed. In the next couple of months, the full results of this project will be included in the McClellan publications, and I for one am looking forward to seeing Tom and Sherman's unique approaches of using this data for future price forecasting purposes.
One variant of the project's categorization process, is the NYA common stock components are split up into the US companies and foreign companies (ADRs). Of the current 2059 common stocks (NYA components) traded on the NYSE, about 355 of those issues are foreign ADRs.
Over the past few weeks, there has been an interesting divergence in the US only common stocks versus the foreign common stock internals.
The first chart illustrates the unweighted NYA average and unweighted foreign common stock average versus the US company-only cumulative AD line. The US-only AD line is similar to the total common stock AD line posted weekly by Fib. What is interesting, is the foreign-only common stock unweighted average (black curve) compared against the total NYA common stock unweighted average (red curve). Both averages started at 1000 in November 2001.
While the NYA unweighted average has been consolidating since August, the unweighted average of the foreign components has continued to move higher. The foreign components of the NYA include companies from every continent on the planet, as well as every industry, so serves as a reasonable proxy for the bluer-chip world market.
My first reaction to the price strength of the foreign components was the assumption the group is comprised of numerous foreign oil and other basic materials companies. A check of the foreign components traded on the NYSE, revealed about 18% of the ADRs are either oil or basic materials (mining, lumber, etc), which may explain some of the foreign stock strength relative to the US stocks, but it also suggests the companies throughout the world are doing okay. Strengthening US dollar?
Next is the cumulative AD line of the foreign-only common stocks traded on the NYSE. Note while the unweighted Foreign stock price average continues to climb, its AD line is moving sideways, suggesting broad based participation in the foreign unweighted price strength is not unanimous.
Next is a comparison of the US-only common stock AD McClellan Summation Index (McSum) versus the foreign-only common stock AD McSum. The red foreign-only AD McSum is predictably stronger than the US-only common stock AD McSum (black curve). While both McSum variants are potentially forming their second hooks/ledges over the past few weeks, the second foreign hook/ledge formation is still above the +250 level implying a failure will likely result in a test of its zero line. The Foreign AD McSum behavior is diverging from its price... whether the divergence results from foreign sector rotational factors or is telegraphing trouble ahead for this group remains to be seen.
Last is a look at the US-only component $ weighted UD volume McSum (black curve) versus the foreign-only component $ weighted UD volume McSum (blue curve). While the US-only $ weighted UD McSum found some support at the zero line (bullish if it ultimately holds), the foreign common stock $ weighted UD McSum remained above +600 in the recent dip... impressive strength and a sign money is flowing freely into the foreign common stocks traded on the NYSE.
In summary, the US common stocks are lagging the foreign stocks both in the internals domain as well as price. Additional study over a longer time period would be needed for definitive conclusions, but my interpretation of the current divergence is it bodes well for US stock prices in the longer term, since we are not seeing the collapse of foreign economies yet, as measured by their collective equity behavior.
An argument could be made the high oil and other basic materials prices are resulting in a transfer of wealth from the US to those foreign countries producing such raw materials, explaining the recent disparity in the US versus foreign common stock behavior.