September Conference Call: 5 Key Takeaways

1. Targets Hit... Now What?

Everywhere we look, we continue to see key assets hit logical levels of overhead supply. Our targets were recently achieved by many large-cap sector ETFs, including Tech $XLK, Communications $XLC, and Financials $XLF. Even the Growth $IWF and Value ETFs $IWD have hit our upside objectives.

We're also seeing it at the index level as the S&P 1500 and S&P 500 $SPY are running into resistance at their Fibonacci extensions. 

And we’ve been talking plenty about all the overhead supply at those pre-financial crisis highs for diversified indexes like Emerging Markets and the All-World Ex-US Index. We’re still trapped beneath them. 

The chart of XLK really tells this whole story well as it ran right into resistance at a key extension level: 

Long story short, this is a very logical time and place to see some of these indexes correct, or digest their recent gains. We’ll be watching closely to see how they react at these levels.

2. Not All Growth Is Created Equal

While large-cap tech and growth have found sellers at key extension levels, there are plenty of other growth names that are faring much better these days.

The IBD 50 ETF $FFTY hitting new all-time highs last week is a nice illustration of this:

These are some of the fastest-growing momentum names the market has to offer. 

As always, we want to focus our energy on those areas holding up the best as the broader market continues to come under pressure. And with how messy things are these days, we need to really drill in because even within groups, things are mixed with some stocks trending well while others are selling off.

Nevertheless, if and when the market resolves to the upside, these are some stocks that are likely to be leadership.

3. Markets Remain Mixed

While we’re on the topic of trends being a mixed bag even within industry groups, let’s talk about another example that recently caught our attention. 

This tale of two markets theme is exemplified well by contrasting the Unconventional Oil & Gas ETF $FRAK with the Exploration & Production ETF $XOP:

Unlike the more traditional explorers and producers (XOP), FRAK continues to find support at its 2016 and 2018 lows. XOP, on the other hand, continues to fail and find resistance at its equivalent level.

Our job is to find those pockets of strength that are bucking the trend and exploit their relative strength. When it comes to energy, the Unconventional Oil & Gas ETF FRAK as well as its components are an area we want to watch for continued outperformance in the coming weeks and months.

As for broader markets, this kind of split evidence is everywhere. It’s no secret that things have been a bifurcated and choppy mess for the past six months. 

It’s been a challenge to find an edge over any significant timeframe in the current environment, and that simply remains the case. Some stocks are going up, but most are not. As always, we’re focused on identifying the former for long opportunities.

4. Cyclical Areas Wrestle with Supply

Two critically important charts we’re watching for global equity markets to signal a more risk-on tone are Emerging Markets $EEM and Regional Banks $KRE.

Both continue to chop around their key former highs from 2018. This just so happens to be when risk appetite peaked around the globe several years back.

The implications of EEM and KRE back below these key levels does not bode well for the global growth and reflation narratives.

Sure, some backing and filling here makes sense. But it’s already been nearly a year, and these groups are really struggling to make a decisive move above these old highs.

They’re going to need to pick a direction eventually, and for now everything else we’re seeing out there is so mixed that it’s difficult to lean one way or the other.

The best course of action is still patience. The outlook is likely to be messy for longer if these two charts are below those crucial former highs. And if we see price rollover beneath these levels, the broader market is likely to come under increasing pressure.

We’ll continue to monitor them closely for resolutions.

5. Commodities Stand Firm Despite Dollar Strength

The inverse correlation between commodities and the US dollar is one of the most robust intermarket relationships throughout history. The US Dollar Index $DXY and the CRB Index look like mirror images placed side-by-side.

It’s pretty simple. A weak dollar often leads to higher commodity prices. After all, commodities are denominated in, and bought and sold in Dollars… Makes sense, right?

Interestingly, indecision in the US dollar has been met with new 6-year highs in the CRB Index. The fact that commodities have continued to push to new heights while the dollar has remained resilient at the top of its 8-month range speaks to the underlying strength for these risk assets.

But to be fair, it hasn’t been a broad-based rally by any means. Over the trailing month, commodities have been driven mainly by strength from energy. Given that the CRB is heavily weighted toward energy, this important subgroup has dragged the index higher with it.

We want to pay close attention to the energy sector in the coming weeks and months to see if this strength can be sustained and built on. But we also want to pay close attention to the other subgroups to see if they’re ready to play catch-up to energy and begin trending higher again after some of the recent sideways action.

This would be a bullish development for risk assets, and it’s most likely to occur in an environment where the DXY Index does not break out to new highs.

That’s it for this month’s key takeaways!

As always, Premium Members can rewatch the Conference Call and view the slides here!

We hope you enjoyed our recap of this month’s call.

Thanks for reading, and please reach out to us with any questions!

Allstarcharts Team