Five Bull Market Barometers (07-03-2020)

July 4, 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.

Now, let's see where these indicators ended the week.

In the percentage of stocks above their 200-day moving average, we ended this week at 29.40%...down slightly from the 35% reading last week. 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, so the longer we're above our 15% threshold the better.

Click on chart to enlarge view.

While we had been using the Nifty 100/Nifty Small-Cap 100 ratio as our gauge of Large/Small-Cap performance, we recently 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.

The ratio rallied a bit this week, signaling some strength from Large-Cap stocks, but we're still below our key level of 2.30 so this remains supportive of the bull case.

Prices continue to stabilize above support at 1.91 in the Nifty Bank/Nifty 100 ratio. While it may seem like we're not making upward progress, it's important to note that NOT making downward progress is also a major positive. As the largest sector of the market, outperformance, or at least in-line performance, is what we're looking for.

After being the first of the five barometers to get above its key level, Copper is now approaching 10-year resistance level near 470-480. With momentum diverging negatively, it's likely we see a pause here. We're watching closely to see how prices digest their recent gains. As market bulls, we'd prefer to see Copper correct through time, rather than price.

"Safe haven" US Treasury Bonds, which serve as a benchmark for Interest Rates around the world, made new all-time weekly closing lows (for the second week in a row). 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 yields (defensive sectors) catching a bid. That hasn't happened yet, but again, we need to be watching this closely.

In conclusion, four of the five “Bull Market Barometers” we’re monitoring are still above their key levels. 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, as well as the new Trade Ideas we've posted over the last week.

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

Allstarcharts Team