Five Bull Market Barometers (07-17-2020)

In the percentage of stocks above their 200-day moving average, we ended this week at 21.00%...down again last week's reading of 22.40%. The rate of decline has slowed, which is a positive and could signal we're headed back to the upside in this indicator. The most bullish thing a stock can do is go up, 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.

This ratio was largely unchanged over the last week, 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, though an important test of that level is likely ahead in the next few weeks. As the largest sector of the market, outperformance, or at least in-line performance, is what we're looking for, so staying above 1.91 is going to be a big deal.

After being the first of the five barometers to get above its key level, Copper is now ABOVE a 10-year resistance level near 470. This has come a long way since its March lows, but as long as prices are above 470 then this structural breakout is intact and the bias is to the upside. Copper strength remains supportive of Indian Equities and Emerging Markets in general.

"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.

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, especially as the US and other countries saw rotation into their cyclical stocks this week. 

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.

Given these indicators have served their purpose and aren't changing much, we're going to discontinue posting updates each week and instead opt to send out an update if/when anything major changes.

Instead, we're starting a new weekly post to outline the three most important charts for the week ahead, beginning next weekend...so keep an eye out for that.

In the meantime, Premium Members can view our entire Q2 Playbook as well as the new Trade Ideas we've posted in the last week outlining how we're taking advantage of the most prominent themes this quarter.

[hide_from accesslevel="premium-india"]If you enjoyed this post and want access to all of our premium content, start a 30-day risk-free trial. Or sign up for our "Free Chart of the Week" to receive more free research like this.

[/hide_from]

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

Allstarcharts Team