March Conference Call: 5 Key Takeaways

March 17, 2021

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley.

We recently held March’s Monthly Conference Call which our Premium Members can access and rewatch here.

In this post, we’ll provide a summary of the call by highlighting 5 of the most important charts/topics we covered along with commentary on each.

Let’s dive into it.

1. Breadth Peaks First

Though volatility has struck the market over the past few weeks, it has not been accompanied by any meaningful deterioration in breadth.

Rather, we continue to see more and more industry groups making new highs, signifying an expansion in participation beneath the surface. The chart below shows the percentage of industry groups at new highs printing its highest reading since late 2016 and early 2018.

These kinds of extreme breadth readings are common during the early stages of bull markets and supportive of higher prices.

We also saw a similar breadth thrust in the percentage of new 52-week highs for Small-Caps last week.

2. Financials Provide a Valuable Lesson

The Large-Cap Financial Sector SPDR $XLF is breaking out of a 14-year base to new all-time highs. This is a major development.

Financials are arguably one of the most important groups of stocks in the world, and they have been a critical missing piece to the puzzle during recent bull runs. That all seems to be changing this time around.

As JC likes to say, "we don't have bull markets in the US without Financials participating."

When we take a closer look at the XLF chart it also offers a valuable lesson.

Notice how price resolved out of its triangle formation off of last year's lows with a bullish gap and go move. And then take a good look at the price action that's ensued. Financials have rallied aggressively back to new all-time highs on the heels of this bullish pattern.

Both the direction of the breakout and the velocity of the move were valuable pieces of information and suggested higher prices to come.

Today, we're seeing similar consolidations resolve higher with breakaway gaps and other bullish pattern breakouts in stock markets around the world. Just like it did for Financials, this would suggest higher prices for these international markets as well.

3. Europe's Laggards Make New Highs

Here are some of the long-term laggards among European stocks. When countries like Greece, Spain, and Italy... three of the four "PIGS" nations, are showing strength it's usually a pretty good sign for global equity markets.

This makes sense given Europe is heavily weighted toward Financials, Industrials, and other value areas.

These are the underperformers in Europe and possibly some of the riskiest areas in the developed world for investors to allocate capital.

Seeing these areas do well supports the broad-based strength in international equities and speaks to the healthy risk appetite in both Europe and around the world.

4. Investors Embrace Risk Around The Globe

Following the theme of strength from Europe's long-term laggards, we're seeing solid price action from Frontier Markets $FM as well.

Frontier Markets include countries like Kenya, Morocco, and Nigeria. These are not regions that investors flock to when looking for safety. In fact, it's quite the opposite. These stock markets are even riskier than the PIGS discussed above.

These are some of the riskiest assets on the planet, and the fact that they are pushing to new highs is yet further evidence of the insatiable risk appetite from investors around the globe.

5. Defensive Areas of the Market Keep Grinding Lower

If the stock market is under pressure, then the ratios below would be working their way higher instead of making new lows. These are the kinds of assets that investors put money into when they are seeking safety, not positioning themselves for risk.

Bonds vs. Stocks, Gold vs. Stocks, and JPY/AUD all continue to work lower.

The only ratio that stands out is Consumer Staples $XLP relative to the S&P 500 $SPY.

It's a bit hard to see but Staples actually bottomed vs stocks a couple of weeks ago, and have yet to make new relative lows along with the rest of these defensive assets.

If the XLP/SPY ratio begins to make higher highs and higher lows that could be problematic for stocks in general.

However given the weight of the evidence, that's just not the bet we're making. For now, it's still three against one... not to mention all of the other data points that are currently suggesting a healthy risk-on environment for markets.

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

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

Allstarcharts Team