November Strategy Session: 3 Key Takeaways

November 2, 2021

From the desk of Steve Strazza @Sstrazza

We held our November Monthly Strategy Session last 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.

Let’s dive in and discuss three of the most important charts and/or themes from this month’s call.

1. New Highs Around The World

New highs are impossible to ignore in the current environment and they were front and center again this month as we scrolled through our charts. We saw new all-time monthly closing highs in the Nasdaq 100 $QQQ, the S&P500 $SPY, and both the Dow Industrial and Dow Transportation Averages.

But it's not just US large-cap indexes resolving to the upside. We continue to see more and more international markets join in on the fun.

One index in particular that stands out is MSCI Canada $EWC:

Canadian equities breaking to new all-time highs makes plenty of sense considering the relative strength from financials and energy. When we look overseas, it continues to be energy and commodity-sensitive economies leading the way. Countries with heavy exposure to financials are also performing well, on balance. Some notable leaders are the Euro Stoxx 600 which is making new all-time highs after breaking out of a multi-decade base and Italian equities which are hitting new 13-year highs.

The point is, it doesn't get much more bullish than new all-time highs, and the fact that participation continues to expand among global equities can only be viewed as a positive development for risk.

2. Bull Flags Everywhere

Continuation patterns and bull flags within the context of structural uptrends was another big theme for us this month. When we reviewed our chartbooks, it was overly clear that the majority of risk assets have been consolidating in ranges following explosive moves off last year’s lows.

Periods of digestion like the one we’ve been in for much of this year is a necessary characteristic for any bull market. Sustainable uptrends don’t move in a vertical line higher. Instead, they are orderly. They should consist of mark-up periods followed by consolidation periods.

And that is exactly what we’re seeing from SMIDs right now:

They made new highs earlier this year, and have been digesting gains in a range since. With large-cap stock indexes in the US and abroad already resolving higher, we’re anticipating that small, mid, and micro-caps will soon follow with decisive breakouts from their ranges as well.

3. Remember to Buy in November

More or less all of the major stock market averages were higher during the seasonally worst six-month period of the year, from May to October. Seasonality data gives us the best information when the market does not follow typical seasonal patterns.

Using this year as an example, the fact that stocks have ground higher through a period where they are usually under pressure suggests that they are likely to continue higher during what is traditionally the best three-month period of the year. It starts in November and runs through January:

Small-caps have an exceptionally good track record in the month of November. It is the best month for the Russell 2000 since it was created back in 1984. And November of last year was actually the best month in the entire history of the index as it blasted higher by more than 18% and reclaimed its former all-time highs from 2018.

What is in store for the little guys this November?

After digesting last year’s gains in a range during the worst months, it wouldn’t surprise us to see the index resolve higher during the best months.

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

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

Allstarcharts Team