November Conference Call: 5 Key Takeaways

1. Another Historic Breadth Reading

We've been pounding the table about one extreme breadth thrust after another since June.

Last Monday's power gap to fresh highs brought on yet another historic reading in one of our breadth indicators as the S&P 500 registered its highest percentage of new 6-month highs since the early 1990s. Check it out.

Up until now, most breadth surges we've discussed have revolved around the percentage of stocks hitting overbought momentum readings.

Now, we are starting to see similar extremes in the percentage of new highs as well. The last two readings of at least 45% occurred just as markets were rebounding off the lows of the Dot-Com Crash and Financial Crisis. If you bought stocks after these bullish signals, you were rewarded with some hefty profits. Will it be any different this time around?

Not only did we write a post about this last week which you can read here, but we also covered it in this week's RPP report and cited other historic readings not just at the index level, but also in individual sectors.

This broadening participation and continuous improvement in market internals is a very bullish development and suggests that we are likely at the beginning of a new bull market as opposed to the end of an old one.

2. New Record Highs For The Average Stock

Here is the Value Line Arithmetic Index $VLA which is a reflection of the average stock from all major US Exchanges as well as the Toronto Stock Exchange.

What does it tell us when the average stock is at a new all-time high? Well, it's definitely not bearish.

Instead, similar to the breadth thrust discussed above, it speaks to broadening participation among Equities and healthy market internals, both of which support the new highs in the major averages.

This is yet another feather in the hat for bulls. Remember, the stock market is really just a market of stocks, and for the first time in years, we're seeing new highs for the average stock. This can only be viewed as constructive as we continue to see more and more stocks partake in the recent rally to new record highs.

3. All-Time Highs Across The Board In US Indexes

You "Dow Theory" enthusiasts are going to like this next one. Here is the Dow Jones Industrial Average and Transportation Average.

The Dow Industrials finally made new all-time highs, putting an end to the bears' argument surrounding the lack of confirmation between these Indexes over the past several years. Read more about this in JC's recent post.

With almost every major US Index resolving from multi-year or multi-month consolidations to fresh all-time highs, what better time to see the Dow finally follow suit.

As long as we're above those January 2018 highs, the risk is higher for US Equities. Why January 2018? Because that is when risk-appetite peaked and we began to see underperformance from higher risk-assets such as Transports, and Small and Mid-Caps.

Speaking of SMIDs, the Russell 2000 and S&P Mid-Cap 400 also recently broke out to new all-time highs. Here's the Russell $IWM.

The days of Large-Cap dominance appears to be under pressure as we are beginning to see outperformance from these smaller and more risk-on areas of the market.

As long as we're above the 2018 and year-to-date highs, the risk is to the upside for small-caps.

We'll continue to monitor the relationship between Large and Small-Caps to see whether this is simply a mean reversion rally or the beginning of a true bearish-to-bullish trend reversal. Based on what we're seeing in other areas of the market, the weight of the evidence is increasingly suggesting the latter.

4. A Potential Trend Change In Favor Of Value

Growth and Value, and the relationship between them, are some of the areas we're talking about that are pointing to rotation into more cyclical, economically-sensitive, and risk-on areas.

Notice the waning momentum in the Growth vs Value ratio as well as a change in the character of the primary trend as price has registered its first lower high and lower low in several years.

The Small vs Large, US vs World, and Growth vs Value trends are all very much one in the same theme. Due to the different sector weightings and compositions of these areas, they are all driven in large part by the relative trend in Technology $XLK vs Financials $XLF.

We can look to this ratio for leading or confirming indications on the other ratios just mentioned.

What are we seeing? Not just lower highs and lower lows, but also a violation of key near-term support at the lows of Q3 and Q4. Look at the zoomed-in insert in the Growth/Value ratio... looks pretty similar to Tech vs Financials above, doesn't it?

The question that remains is whether these other relative trends will follow suit and begin to break down as well.

We covered this topic in detail in this week's RPP Report which you can read here.

5. It's Not Just The US... Equities Around The World Are Also Breaking Out

How about these long-awaited new all-time highs for India's Nifty 50 Index.

Not only are most of the major US Indexes at new highs, but JC also covered a number of Global Indexes that recently resolved to new highs as well. Again, this speaks to a broadening of participation, but not just domestically... it's also occurring outside of the US.

Here is a list of some other Global Indexes that were covered on this month's call and are also currently trading at record highs:

• Taiwan Stock Exchange
• Borsa Istanbul 100 (Turkey)
• NZX 50 Index (New Zealand)
• OMX Stockholm 30 Index (Sweden)

* Note that these Indexes are all quoted in their respective local currencies.

Those are some of the main takeaways from this month's call.

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

Allstarcharts Team