August Conference Call: 5 Key Takeaways
1. "Nasdaq vs Bonds is back to the scene of the crime, and breaking out this time."
The Nasdaq vs Bonds ratio rolling over at its prior highs was one of many reasons we were selling stocks back in January and February. After a few more months of consolidation, this ratio recently just broke out above this key level to fresh all-time highs.
When discussing this, JC pointed out that "stocks have made zero progress relative to Fixed Income Markets for several years now" and that "the chart argues we're likely closer to the beginning of a new bull market than the ending of an old one."
Also notice that despite the strength from Gold this year, the QQQ/GLD ratio chart is setting up in a similar way and likely to resolve higher along with QQQ/TLT.
2. "New all-time highs from the Discretionary vs Staples ratio suggests the S&P 500 should follow."
On the call, JC explains that this is one of our favorite intermarket ratios because "it looks exactly like the S&P."
When offensive areas such as Discretionary, outperform defensive areas like Staples, it speaks to healthy risk-appetite and typically bodes well for stocks in general. We're seeing many other risk-appetite ratios support higher stock prices right now as well.
3. "If the world was coming to an end, Lumber wouldn't be breaking out to all-time highs."
Here is another intermarket relationship that supports new all-time highs from the major stock market averages.
JC points out that the action from Lumber is bullish for stocks and the economy, and "does NOT support the argument that we're in a deflationary environment."
Notice how diverging Lumber prices acted as a warning sign for prior bear markets or corrections for stocks. For example, ahead of the Q1 selloff, Lumber had been making lower highs despite the higher highs for the S&P.
Today, we have the opposite as Lumber just spiked to fresh record highs. And as JC put it last night, "we want to make the bet that the S&P follows to new all-time highs."
4. "Historically these massive breadth thrusts lead to further gains."
Our colleague Mike Hurley is the go-to guy when it comes to breadth and market internals. Last week, we had a discussion with Mike and some other Technicians on the topic. JC summed up some of Mike's comments pretty well on last night's call.
"Don't be looking for divergences in breadth early on in the cycle because when you get these massive breadth thrusts it's almost impossible to exceed that."
Well, we definitely had a cluster of bullish breadth thrusts in May and June. The chart above shows the percentage of S&P stocks with an overbought momentum reading hitting its highest level since 1991 recently. When discussing this chart, JC also pointed out that looking back 30-years "whenever we had these massive thrusts, they were all great times to buy."
We've been focusing on new short-term highs since the March lows, but now that the S&P 500 is back at new highs "we should expect a spike in new 52-week highs."
5. "This is absolute garbage... Garbage. Garbage. Garbage!"
One of the main themes from last night's call was the pervasive weakness in Financials, and in particular, the big money-center banks. All of them look bad, but Wells Fargo $WFC is a shining example of just how ugly things have been for this space.
As JC put it, "if Wells Fargo is below 30, this could be a ZERO."
On the other side of things, JC zoomed out on the chart of Large-Cap Financials $XLF and pointed out that despite the relative weakness "the primary trend is still up."
In his words, "this points to how some of the weakest areas still don't look terrible... Even European banks aren't crashing."
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Thanks for reading and please let us know if you have any questions!
Allstarcharts Team