September Conference Call: 5 Key Takeaways

1. Leaders Since Stocks Broke Out Remain Most Resilient Areas During Selloff

This scatter plot compares the performance of key Sectors and Indexes since the S&P 500 broke out on August 21st with when it recently peaked in early September.

Notice how Technology $XLK (including Communications $XLC) has really underperformed since the market made its last high about two weeks ago. The market's strongest areas for the past several years - Internet $FDN, Software $IGV, even the Nasdaq 100 $QQQ, are all lower by -9 and -11%.

On the other hand, cyclical and commodity-centric areas like Materials $XLB, Transports $IYT, and Gold Miners $GDX have shown resilience. Not only are they the top-performers since the S&P broke out in August, but they are about flat (or positive, in the case of GDX) while the broader market has corrected 5-6%.

2. Structural Trends In Tech Remain Intact

Despite the recent weakness in Tech, a few weeks rarely has much impact on the primary trends in place.

This is why it's always important to zoom out and analyze things within the context of the long-term trend. Whether a 20-year base breakout, in the case of the PHLX Semiconductor Index $SOX, above...

Or about ten-years of stair-stepping higher, as Social Media stocks $SOCL have done (below)...

The underlying trends in most of Tech's key Industry Groups are still undeniably higher.

Not only are these groups in strong long-term uptrends, but many of them, such as Semis and Social Media, have pulled back to logical levels of support during the recent selloff.

The bottom line, despite the near-term underperformance, no structural damage has been done to Tech. In fact, we view this as healthy sector rotation and an expansion in breadth as new groups like Materials and Industrials $XLI have picked up the slack and assumed leadership over the past month or so.

We're buying the strongest stocks in both these short-term and long-term leadership groups.

3. Last Month Stocks Broke Out Relative To Bonds... This Month They Face A Crucial Retest.

We covered the Nasdaq vs Bonds and Nasdaq vs Gold ratio in last month's summary as both were just breaking out to fresh highs. In the time since, that weakness we just discussed in Tech has caused the Nasdaq to retrace relative to Bonds $TLT. It is now retesting its breakout level at those key prior highs ~1.62.

How Tech performs from here will determine the path of this ratio.

Considering our bullish outlook on stocks, we want to see the Nasdaq hold this critical level vs Bonds. We pay close attention to this ratio as it provides useful information as to which asset classes are being favored by investors. In fact, one of the things that helped us turn bearish back in January/February was this chart rolling over from the same level it's at today.

4. Continuation Patterns In Silver And Gold 

As we mentioned when discussing the first chart, Gold Miners have been one of the market's best-performing groups over the trailing two to four weeks. Despite this near-term resilience and relative strength, both the miners and metals have gone more or less sideways when you zoom out about two months.

Look at the bullish continuation patterns in Gold and Silver above as they digest their recent gains.

When you zoom out, things only look better for Precious Metals.

Silver is coming off a massive rally and consolidating constructively above our risk level and key former 2011-2012 lows around 27. As long as we're above there, the bias is higher.

It's worth noting that this was the same path that Gold took recently. Gold prices cooled off and consolidated beneath their 2011-2012 lows towards the end of last year, before resuming higher and eventually making new all-time highs this year.

We think we could be seeing something similar taking place in Silver right now.

5. Massive Bases In Miners.

Here are some long-term charts of Gold and Silver Miners $SIL now. Silver is on the bottom and Junior Miners ($GDXJ, $SILJ) are on the right.

Prices are resolving from multi-year bases above key prior support and resistance levels.

As you can see in the charts, Gold Miners have already made much more progress and are above key resistance, working their way back towards former highs. Meanwhile, Silver Miners still have some overhead supply to work through to fully complete their bases. With that said, the Gold Miners, similar to Spot Gold and Silver, have painted a nice picture for what we could expect from Silver Miners in the months and quarters ahead.

We outlined several setups in the individual components of these ETFs on the Conference Call as well as some Canadian Miners in our recent post, which Premium Members can read here.

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

Allstarcharts Team