5 Key Takeaways From the April Conference Call

April 22, 2021

From the desk of Steve Strazza @Sstrazza and Ian Culley @IanCulley

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

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

Let’s dive into it.

1. The Underlying Uptrend Remains Intact

One of our favorite routines is probably something business consultants or analysts would refer to as a "best practice" of ours. It's so simple but so important.

Every month, we turn-on some good tunes, tune-in to the big picture, zoom-out on some monthly charts (instead of 'tune-out' - all my hippies out there will get this wordplay) and really focus on the primary trends at play.

It really is quite the zen exercise. It helps us escape the day-to-day noise and allows us to identify the key structural themes. And presently, one of the most important of all is that the primary trend in US stocks is still undeniably higher.

This chart of the Dow Jones Industrial Average, one of the most important stock indexes in the world, illustrates this well. And remember, this was the laggard among the large-cap averages until recently.

When we zoom out to the mid-90’s it becomes crystal clear that price continues to move up and to the right on the chart, indicating the direction of the trend.

Also, the S&P 500, DJIA, Nasdaq 100, and Value Line Geometric Index all closed last week at new all-time highs, among others.

And there’s nothing more bullish than new all-time highs!

So, even though we remain in a messy environment from a tactical perspective, the underlying uptrend is still intact.

2. Many Stock Indexes and Risk Assets Hitting Logical Areas of Overhead Supply

The market environment has been challenging lately as price action has entered a period of sideways chop. This makes total sense given risk assets around the globe have run into logical levels of resistance.

Two great illustrations are the charts of the All Country World Ex-US ETF $VEU and the Emerging Markets ETF $EEM.

Both EEM and VEU are stuck below their respective 2007 highs as demand continues to digest supply.

As long as many of these risk assets remain below key levels of overhead supply, the environment will most likely remain challenging from a near-term perspective.

However, if these two indexes can settle above those former highs and break out of these 14-year bases, this would be an indicator of a new bull market in international equities.

3. Lower Highs For Smalls

We mentioned earlier that all the major US large-cap indexes made new all-time highs last week, and this is certainly where the recent strength has been. Even Mid-caps hit new all-time highs last week.

But as we move down the cap-scale, small- and micro caps have failed to reach new highs. Observe the divergence that exists at this moment between these indexes.

The high-beta chase that has led this bull market in the early innings has cooled, and we see it in the underperformance of higher beta plays found in the small- and micro-cap areas of the market.

Until these smaller areas of the market begin to participate again, messy market conditions will most likely prevail.

4. Defensive Assets Show Signs of Life

Another point suggesting that the market remains messier for longer is the fact that most defensive assets stopped going down and now appears to be forming a base, indicating the possibility of an upside resolution.

Gold is finally catching a bid after a lackluster eight months.

The Yen is moving higher.

And even Bonds, the worst of the worst in terms of recent performance, are holding up after reaching key support levels.

Regardless of the reason, as long as money is trickling back into these three assets, which are considered as a “safe haven”, and if they continue performing well during the next few weeks, a messier environment is expected.

5. No More Downtrends For Developed Europe

Europe is waking up from a deep slumber as indexes across the continent break to new highs not seen in decades.

Even the worst of the worst in Europe are participating.

Portugal, Italy, Greece, and Spain break above long-term downtrend lines, indicating a possible shift in the underlying trend.