Five Bull Market Barometers (06-05-2020)

JC Parets
June 6, 2020

In early May we outlined the "Five Bull Market Barometers" we're watching to identify the beginning of a new bull market in stocks.

If you haven't read our initial post linked above, we'd encourage you to check it out so you understand what the rationale behind these five indicators is.

It's also worth pointing out that last week we noted that despite the slight improvement in two of these measures, zero of the five were above their key risk levels. Despite that, the market was telling us that the short-term momentum remained to the upside and our long ideas were working well.

After a couple of strong weeks in the market, let's take a look and see how these longer-term indicators have fared.

The percentage of stocks above their 200-day moving average remains subdued, at just about 6% where it's been for the last three weeks. This number falling week/week despite strong stock market performance makes sense given a lot of the leading stocks are catching their breath while the laggards play catch-up. Nice to see some broadening of participation in the short/intermediate-term, but long-term our signal triggers when the percentage of stocks above their 200-day gets decisively back above 15%.

Click on chart to enlarge view. 

The Large-Cap/Small-Cap stock ratio continues to sit near all-time highs, showing that risk appetite among market participants remains weak. Institutions that drive major market trends are still hiding out in the biggest companies, not venturing out into the "riskier" Small and Mid-Cap stocks.

We saw slight outperformance from Small-Caps this week, but like the Nifty Bank relative chart below, we need to see continuous improvement, not a one-off week of strength.

Nifty Bank, the largest sector of the market, continued to stabilize for the second week in a row after crashing over the last few months. As the largest sector of the market, outperformance, or at least in-line performance, is a major positive for Equities as an asset class.

Copper breaking decisively above 410 is a sign that market participants are becoming more optimistic about global growth expectations and risk assets. This week's decisive move to the upside makes sense given the bounce in Interest Rates we're finally seeing, both pointing to more optimism about growth.

"Safe haven" US Treasury Bonds, which serve as a benchmark for Interest Rates around the world, are finally reverting higher after two months of waning downside momentum. This is a start, but if the US 5-Year Yield gets above 0.55 this move could really get going...and if money is coming out of Bonds and needs a home, that's supportive for Equities.

One of the five “Bull Market Barometers” we’re monitoring is above its key level, but several are showing notable improvement.

Since mid-May, we've been in the camp that the short-term momentum has been to the upside and that remains so. This week we approached several levels of potential resistance in the Nifty and other major indices, so we're watching to see how prices react.

Overall though, the shift from a "sell the rips" type market to a "buy the dip" type market continues...led by the US S&P 500, German DAX, Japanese Nikkei 225, and other leaders. If and when the weight of the evidence starts shifting back the other way we'll adjust again, but for now the number of bullish data points continues to outweigh the bearish data points.

Premium Members can head over to our Trade Ideas page for a summary of all our recent setups/posts.

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Allstarcharts Team

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