Participation has been falling, that much we know for sure. Are some sectors being hit harder than others? We drill into the group matrix to determine what you need to know.

If you have read the report recently, listened to NDW’s podcasts, or really visited any form of NDW research over the last month or so, you will have undoubtedly picked up on the fact that participation is declining. While this on its own isn’t an inherently bad thing, it can leave markets on rocky footing in the event that we do see an exhale to close out the year. Perhaps the most ominous of our flagship participation indicators is the short-term ^TWSPX (S&P 500 stocks trading above their 50-day MA), which has ground lower since the mid-point in the year. While the indicator certainly hasn’t washed out on a major exhale like we saw during April’s tariff tantrum, it would be quite difficult to find a chartist out there that would say the chart looks “good” by any version of the word. While many NDW loyalists will be familiar with indicators for the NYSE or SPX, a more astute analyst takes time to look under the hood to gauge what parts of the market are gaining or losing strength. After all, while the saying “a rising tide lifts all ships” certainly can be true, many of us would probably like to ride said tide higher in a yacht over a skipper….

There are several ways to peel back the onion, many of which we have covered throughout the years. For the sake of today’s featured article, we will visit two areas of the platform: the matrix and the technical indicator report. NDW’s pre-made group matrix brings together 40 different unique sectors (and the benchmark SPXEWI) into a relative strength arm-wrestling contest. As with other matrices around the platform, strong representatives are names you would want to look towards for investment. As you might expect, precious metals remains atop the heap despite a recent pullback recently. Other risk on sectors litter the top half of the matrix, seeing the likes of semiconductors, computers, and electronics, all score within the top 10. On the other hand, points of weakness are largely consistent from other points in the year. Traditionally risk-off groups remain towards the bottom of the rankings.

So is that it? Should we be satisfied with this level of analysis? While we could rely completely on the matrix, we can overlay an additional layer for today’s feature. This added analysis allows us to blend together overall sector relative strength with the topic of participation drop-offs mentioned at the start of the piece. The table below displays the current sectors, their overall rankings, their current bullish percent readings and how that value has changed over the last month. For the uninitiated, bullish percent charts help measure the percentage of stocks within a group trading on PnF buy signals, helping us gauge an intermediate term picture of strength. The chart is a touch busy… but simply put we are trying to analyze if high RS groups are narrowing at a different rate than other areas of the market. There are a few interesting points to note:

• The top half of the rankings still show on average higher participation levels (48% for top half vs. 35% for bottom half)
• Despite this, the top half has seen more intense declines in participation over the last month. The top half has seen their average BP chart fall by ~-10% over the last month, compared to just ~-5% for the bottom half.
• Most of this decline in participation comes from the top groups- the strongest ten names within the matrix have seen their BP charts fall by an average of ~-16% this month
• No sector is really accelerating in participation-  only three sectors actually moved higher (oil services, steel, & gaming.) There were a handful of sectors that stayed the same.
• The S&P 500 equal weight index sits smack-dab in the middle of the rankings, earning the 21st spot with just under half the index sitting on buy signals.

Adding the participation layer adds in some complexity- you can see that the top of the matrix is the group narrowing the most. Remember, participation does not always equal performance, but it can offer some insight into how different sectors stand. While the data doesn’t suggest any sectors towards the bottom are making threatening moves higher, it does warrant that we watch those leaders if participation continues to wane.