Five Bull Market Barometers (06-26-2020)

We ended this week at 35%, up from 20.80% last week. We continue to see the number of stocks in an uptrend expanding, NOT deteriorating. The most bullish thing a stock can do is go up and we're seeing more stocks going up and trade above their long-term moving average.

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While we had been using the Nifty 100/Nifty Small-Cap 100 ratio as our gauge of Large/Small-Cap performance, last week we swapped it out for the Nifty 50/Nifty Small-Cap 100 ratio. We've written two extensive pieces on this ratio (Article #1 and Article #2) and feel that it is a better representation of risk appetite.

And more importantly, it gives us a clear level to judge it as bullish or bearish. If prices of this ratio are below 2.30, then the failed breakout is intact and we can expect Small-Caps to continue outperforming. The ratio fell more this week, signaling further outperformance from Small-Caps.

Nifty Bank, the largest sector of the market, continued to stabilize for the fourth week in a row after crashing from late February to early May. As the largest sector of the market, outperformance, or at least in-line performance, is a major positive for Equities as an asset class.

Since prices have stabilized, we can put this ratio in the bullish category as long as it stays above long-term support/resistance near 1.91. Above that, we're in good shape.

Copper has stayed well above our level of 410 for several weeks, which is a clear sign that market participants are becoming more optimistic about global growth expectations and risk assets like Equities. We're watching closely to see how it handles long-term resistance near 480.

"Safe haven" US Treasury Bonds, which serve as a benchmark for Interest Rates around the world, made new all-time weekly closing lows. This is indicative of risk-off behavior among market participants and signals that money continues to flow into Bonds. This remains one of the largest risks to Equities as an asset class and is something we're monitoring closely.

If Yields are making new lows, this likely shows up in the Equity market with Banks and other cyclical stocks breaking down and sectors with higher dividend yield (defensive sectors) catching a bid.

In conclusion, four of the five “Bull Market Barometers” we’re monitoring are now above their key levels after showing several weeks of continuous improvement. Global Yields remain a major concern, but the weight of the evidence continues to suggest a bullish longer-term outlook towards Equities remains best.

Premium Members can view our new post outlining the biggest risks to Equities as we head into July.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team