A Top/Down Analysis of Global Markets: Stocks, Commodities, Forex & Rates

Step 1 of this process is to go around the world looking at every single major stock market. This list includes, all U.S. Indexes like the S&P500, Dow Jones Industrial Average, Russell2000, Euro Stoxx 50, London FTSE 100, Japan Nikkei 225, Belgium 20, China Shanghai, and the list goes on and on. I've taken the weight of the evidence here to conclude that stocks as an asset class are in an uptrend. Click to see the list of all the US Indexes and entire list of International Indexes index in my Chartbook. These are a few of the charts the led me to this structurally bullish conclusion:

First, here is the S&P500. We have been long and pounding the table bullish since early July. Our target of 2335 still has not been hit, but the series of higher highs and higher lows gives me little reason to change our approach:

Click on Charts To Zoom In

 S&P 500

The NYSE Composite holdings above the 2015 highs is another feather in the hat for the bulls. Remember that this market-cap weighted index has much more international exposure than the other US-based Indexes. Over half of the largest 100 companies in the NYSE Composite are foreign stocks. The longer we remain above 11,000 the more constructive this becomes. The path of least resistance here is still higher:

 NYSE Composite

Looking at some smaller-cap companies, here is the Russell2000. I still see a breakout above the 2015 highs and a sideways consolidation digesting those gains. Our bullish approach still seems appropriate. We want to be buying weakness in this index with a target above 1500:

 Russell 2000

Here is an index I created with the top 10 largest stocks in America. I call this the All Star Charts Super-Mega Cap Index and is equally weighted. A breakout to all-time highs here is not bearish:

Super-Mega Cap Index

Looking more Internationally, if the London FTSE 100 is breaking out of a 17-year base to all-time highs, it's hard for me to be bearish stocks as an asset class. This has to be one of the top 5 most important stock indexes on earth, maybe even top 3. How can I possibly look at this is anything less than constructive?

London FTSE 100

Europe still looks like it is breaking out from a year long base and we want to be buyers of any weakness. I think we see 400 in this Index soon:

Euro Stoxx 600

Japan looks like an eerily similar breakout doesn't it? 21,000 is still our target.

Nikkei 225

These are not downtrend folks.

The Nifty50 in India is on its way to retest this overhead supply near 9000 for the 3rd time. The more times that a level is tested, the higher the likelihood that it breaks out. I believe we see this breakout during the first half of this year and we achieve our upside objective of 10,450 at some point this year:

India NIFTY 50

The structural strength can be seen all over the place. Here is the Taiwan Stock Exchange Index testing this 10,000 level for the 5th or 6th time, depending on how you count it. But this is not bearish. I think a structural breakout after a 20-year base is imminent here:

Taiwan

This is an index I created where I take the top 10 largest stock exchanges in the world and equally weight them. This is the Allstarcahrts Equal-weight Top 10 Global Exchange Index breaking out of a 9-year base to new all-time highs. This is not a bearish characteristic for stocks as an asset class:

Equal-weight Top 10 Global Exchanges

This gives us bigger picture macro perspective. Based on everything I see, we know a) we do not want to be short equities and b) we would rather be buying weakness than selling into strength.

The next thing we want to do is look to see where the strength is in stocks, but on a relative basis. Which sectors are standing out as the leaders and which are the weak laggards? If we believe stocks are in an uptrend, which we do, then we want to be buying the strongest sectors, not looking for mean reversions in the weakest ones.

The one that stands out the most to me is Technology which is breaking out of a 15-year base relative to the S&P500. I can't ignore this:

Technology vs S&P500 (XLK/SPY)

Meanwhile, Healthcare is hitting multi-year lows relative to the S&P500 as indexes all over the place keep hitting all-time highs. See the difference?

Healthcare vs S&P500 (XLV/SPY)

Finally, Industrials are still within a longer-term range going back to 2010. But this consolidation comes within the context of a longer-term uptrend in Industrials relative to the S&P500. I would expect an upside resolution soon. When it does break out, we want to make sure we're all over it it because it can be vicious to the upside:

Industrials vs S&P500 (XLI/SPY)

Once we see where the leadership is and where the weakness lies, we want to look through every single sector and important sub-sector within the US Stock Market on an absolute basis. You can see the entire list in here: US Sectors & Sub-Sectors.

One sector that definitely stands out as a leader is Technology. It's a killer combination when what you're seeing on a relative basis fits in perfectly with the absolute strength. I believe Technology is one of those cases. Here it is looking longer-term. After breaking out of a 2-year base, prices are now attempting to retest those all-time highs from March 2000. That is still a long way from current levels:

Technology $XLK

After looking at a longer-term chart, we can then break things down shorter-term. Here is Technology on a daily timeframe breaking out again in December and heading towards our intermediate-term target near $54:

Technology $XLK

The way I see it, Semiconductors are a leading indicator for Tech. It is also one of the most important sub-sectors on my list. If semi's are above 905, we need to be aggressive buyers. I don't see an environment where Tech continues to lead the market higher and Semi's do not participate. To the contrary, I would expect semi's to lead us higher:

Semiconductors Index $SOX

Here is a shorter-term look with a target near 1088, which is based on the 261.8% extension of the 2015 decline:

Semiconductors Index $SOX

Also within Technology, Social Media looks impressive. We want to be long $SOCL if we're above 23 with a target near 27.80:

Social Media Index $SOCL

Another strong sector since the Fall has been Financials. Our upside target was hit in December as you can see here. As bullish as we were, once our target was achieved, neutral has been our best bet. This target near 23.85 for the Financials ETF $XLF was based on the 161.8% extension of the 2015-2016 decline. The market respects these levels, so I feel it would be irresponsible of us not to acknowledge them:

Financials $XLF

I will say that the sideways consolidation of those monster gains is a much healthier way for them to digest than through a downside price correction. A breakout above 24 in $XLF should confirm the start of a new leg higher and that's what we'll be watching for.

Within Financials, it's the Insurance stocks that stand out to me. Look at the Insurance Index ETF $IAK breaking out to new all-time highs and staying above it:

Insurance Index $IAK

These are just a few examples. But we go over every single sector and sub-sector in the Chartbook for Premium Members. This should still give you an idea of how we go through the top/down approach. The final step of the stock picking process, is to take all of this macro information and apply it to the individual stock level to find short-term to intermediate-term opportunities.

Here are a few stocks that fit within the overall thesis mentioned above:

The first is Microsoft breaking out to new highs last year. As I've been saying since July - new highs are not a bad thing. I still have my eye on that $75 level:

Microsoft $MSFT

Intel looks like it is breaking out of this massive base. We want to be aggressively long if we're above $36 and I think we get above $51

Intel $INTC

Getting a little bit more agricultural, Deere still looks like a monster. This is coming out of a massive base and hitting new all-time highs. $124 is our upside target based on the 161.8% extension of this entire consolidation:

Deere $DE

Here is a closer look at that breakout in November. Notice how it gapped up above those former all-time highs in 2011. I can't think of a more bullish way to resolve a consolidation. Some call this a "Breakaway Gap":

Deere $DE

Within Financials, the Broker Dealers have also shown relative strength. Here is Morgan Stanley holding above the former highs in 2015. I think if we're above $41, $MS is a long with a target above $53:

Morgan Stanley $MS

Netflix is another example of that Breakaway Gap scenario mentioned in shares of Deere. Look at all of this resistance that was fully absorbed after gapping above $133. We want to continue to be long if we're about 133 with a target near $166:

Netflix $NFLX

This is still a strong uptrend. Nothing has changed in Netflix. You can see that longer-term trend here:

Netflix $NFLX

Within the Insurance space, Allstate looks good. This is a strong uptrend from any kind of longer-term perspective:

Allstate $ALL

Here it is shorter-term. You can see why we want to be long if we're above $73 with a target near $84.50. If we're above resistance from the 2015 highs, it suggests overhead supply has been absorbed and there is more demand to take this higher:

Allstate $ALL

In Semiconductors, I find that it's the Integrated Circuit stocks specifically within this sub-sector. So not only are we drilling down to the sub-sector level, but we're taking it one step further to a unique segment of stocks within that sub-group, in this case Integrated Circuits.

Here is Analog Devices $ADI breaking out longer-term, very similar to the Semiconductor Index. This has 100+ written all over it:

Analog Devices $ADI

The trade seems clear: Stay long if we're above $74.50 with a short-term target above $82 and $100+ later this year:

Analog Devices $ADI

Here is Skyworks Solutions $SWKS coming out of a nice base. We want to be long if we're above $90.50 and taking profits near $113:

Skyworks Solutions $SWKS

This is Power Integrations $POWI breaking out of a 3-year base. I like this long if we're above $69 with a target near $89:

Power Integrations $POWI

At this point I think you have a good understanding of how we break things down starting with a bird's-eye view of all stock markets around then world, then work our way to the sector level and finally to the individual stock trading idea. Also, keep in mind the multi-timeframe approach of starting with a longer-term perspective and then looking at 1 year long charts for tactical opportunities.

In order to supplement this work, as well as find individual trade ideas in other asset classes, we want to next turn to the futures and forex market. This includes commodities like Gold, Silver, Crude Oil, Corn and Soybeans. It also includes the US Dollar, Euro, Yen, Indian Rupee and Canadian Dollar. With respect to interest rate markets, we also include US Treasury Bonds, High Yield and Investment Grade Bonds. This entire list can be found in the Chartbook.

Here is the CRB Commodities Index, which remember is more heavily weighted towards Energy than the CCI Commodities Index. To me, this looks like an 18-month bottoming process coming to an end and resolving higher:

CRB Index

Crude Oil also looks like a major bottom here and our target remains near $62.50:

Crude Oil $CL_F

This is an equally-weighted index of the Energy Commodities Futures: Crude Oil, Heating Oil and Unleaded Gasoline. It also looks like a bottom, not a top, and suggests buying weakness in Energy:

Allstarcharts Total Energy Futures Index 

Gold is just a mess. Our upside targets were hit last June and it's been a hot mess ever since. I continue to stress that unless you have to be in the precious metals market, I see little reason to mess with it. I think the opportunity cost in this area is simply way too high to even consider:

Gold $GC_F

In the more Agricultural commodities, Corn looks great. I think this breakout is for real and another test of 440 is coming soon. Remember moves in this space can be parabolic. So we want to be long if Corn is above 360 with a target near 440 in the short-term:

Corn $ZC_F

I also think we can be long Sugar if it is above 20 with a target above 26 which is based off the 61.8% retracement of the entire 2011-2015 decline:

Sugar $SB_F

In currencies, the big head scratcher for me is the US Dollar. This to me looks like the completion of a monster base in early 2014 and then a digestion of those gains since March 2015. That consolidation should have resolved higher and it is is certainly attempting to.  But the 100 level is a hard line in the sand. I can't be bullish US Dollars unless we're above that:

US Dollar Index $DXY

The Euro, on the other had, held those 2015 lows and seems poised for a squeeze towards 1.20. I can totally get behind a risk vs reward that offers that sort of profit potential with such defined risk. I know some smart people long Euro very aggressively if we're above 105.50. But if we're below that, all bets are off:

EUR / USD

In bonds, one chart I'm watching is the US 10-Year Note Yield. This benchmark for US Interest rates has rallied back up towards 2.5% since the Summer lows. That 1.4% level had been our downside target for a long time and when that was achieved we wanted to sell all of our bonds. Since then, bonds were our favorite short through the end of last year. At this point, we're kind of in no-man's land.

US 10-Year Treasury Note Yield

The longer we stay above these downtrend lines, the more constructive this becomes and the more bearish it is for bonds. The 2.3% level looks like a solid line in the sand. If we're above that in 10s, it's hard for me to justify buying bonds. Talk to me if this breakout fails, is the way I'm approaching it.

This is my top down approach. I supplement it with some intermarket analysis where I compare asset classes and sectors. Here is a good example of an index I created of the countries most correlated with the price of Crude Oil. This is an equally-weighted index of Brazil's, Russia's, Australia's and Canada's stock markets priced in their local currencies:

All Star Charts Oil Countries Index

This particular intermarket chart is to help identify the trend in Crude Oil. You can see the entire list of Intermarket Charts here. Look how closely these two move together:

All Star Charts Oil Countries Index & Crude Oil

I hope you now have a better understanding of how I look at markets. I provide this weekly market analysis based on the current environment to premium members of All Star Charts as well as full access to my Chartbook with over 500 charts annotated every week with commentary.  If you found this information useful I urge you to take advantage of the limited time discount on our premium membership: Chart Summit 30-day risk FREE trial