June Strategy Session: 3 Key Takeaways

June 6, 2021

From the desk of Steve Strazza @Sstrazza

We held our June Monthly Strategy Session this past Thursday night. Premium Members can access and rewatch it here.

Non-members can get a quick recap of the call simply by reading this post each month.

By focusing on long-term, monthly charts the idea is to take a step back and put things into the context of their structural trends. This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a "big-picture" point of view.

With that as our backdrop, let's dive right in and discuss three of the most important charts and/or themes from this month's call.

1. A Tale Of Two Exchanges

We have been highlighting the shift taking place away from Growth, and in favor of Value since last year. This intermarket analysis allows us to better prepare and position ourselves for whatever kind of market environment we happen to be in - including which stocks are doing well and which ones are not.

Speaking of which, we've seen an interesting development lately as stocks have diverged in performance depending on what exchange they trade on.

On the one hand, we have breadth expansion in the NYSE Composite as more and more stocks are making new 52-week highs and confirming the new highs in the index. This behavior makes total sense considering its value and cyclical-heavy exposure as well as all the international stocks and ADRs it holds.

On the other hand, we have the Nasdaq Composite doing the exact opposite, with a deterioration in new 52-week highs. This supports the choppy action we continue to see at the index level.

The diverging paths of these two charts is just another way to illustrate the dynamic between growth and value right now.

2. Commodities Call For Lower Rates

This is the Copper/Gold ratio which is one of the most valuable pieces of intermarket information we have when it comes to determining a view on the future direction of interest rates.

This ratio recently failed to confirm its new highs, leaving us with a failed breakout at its 2018 high which is when risk appetite peaked around the globe.

What we know about failed breakouts is that they are often followed by fast moves in the opposite direction. In the case of this chart, that would be lower... And what's that say for rates?

Also, take note of the bearish momentum divergence that, if price violates its March high, will confirm itself, suggesting greater odds of a continued move to the downside.

Regional banks relative to REITs (KRE/IYR) and High Yield Bonds relative to US Treasury Bonds (HYG/IEF) - are two other indicators we pay close attention to for rates. Therefore, now all three asset classes - from Bonds, to Stocks and Commodities, are suggesting lower rates are in the future.

What do you think risk assets are doing in that environment?

3. Timeframe Is Everything

The Thompson Reuters CRB Commodity Index and Crude Oil Futures (CL_F) both breaking to their highest level in several years is an excellent example of just why we find it so important to zoom out.

After rebounding strong off the COVID lows and breaking above those former 2016 lows earlier this year, it sure looks like the long-term trend has reversed from bearish to bullish.

Although in the short term we expect a correction or some sideways action due to the mounting data that's suggesting lower rates in the near future.

As for the structural trend in both the CRB Index and Crude Oil... They are bullish as long as we remain above the 2018 highs and 2020 highs, respectively.

So, short-term chop and sideways action for risk assets... and eventually a resumption of the long-term uptrend. That's our take!

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

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

Allstarcharts Team