[Premium] Three Charts For The Week Ahead

JC Parets
December 5, 2021

We retired our "Five Bull Market Barometers" in mid-July last year to make room for a new weekly post that's focused on the three most important charts for the week ahead.

This is that post, so let's jump into this week's edition.

Last week we focused on EUFN, Crude Oil & Nickel.

Let's move into this week's topics.

1. The first chart we’re looking at is of Crude Oil Futures. This chart is in USD. As can be seen from the chart below, the price successfully moved past its 2016 highs of $76 halfway through this year. Post that we saw the price rally towards $85-86 levels. But the price failed to hold on to those highs.

What's more telling, is that the price moved back below its 2018 highs. Currently, trading close to 66, it seems like we're back here to test the support at $66.  It will be important to track how the price reacts around this important level of support. If this level is taken out, then we will see a spillover effect on the CRB Index as well as the other commodities.

2. The second chart we're looking at is Nifty 50 relative to BSE Corporate Bond Index. When stocks outperform bonds, it's usually a safe bet, unlike the period between August 2018 - January 2020 when Nifty was moving higher on an absolute basis only.

From June 2021, we've witnessed both absolute and relative outperformance in Nifty. The ratio is currently retracing back beneath its Q3 highs after the Nifty peaked in October.

As long as the ratio remains above the summer lows, our outlook on stocks versus bonds is neutral. If the ratio repairs the recent damage and reclaims the October highs, the alpha will be back with the stock market, and we'll want to reposition accordingly.

3. The third chart we’re tracking is the sectoral Relative Rotation Graph. This is a visual representation of what the sentiment is like among the various sectors of the market. The top right quadrant is where the leading sectors are making their way. As you go clockwise the strength turns to weakness. Hence, the top left quadrant is where the weakest sectors are displayed.

Going by the information we have here, Media, Realty, PSU Banks, Energy, Infra are displaying strength as they are present in the leading quadrant. While these are the absolute trends, we are yet to see a confirmation of this strength on a relative basis. However, this chart helps us see the sector placement as a whole.

In our view, these charts will help set the tone for this week and provide us with information on how we should approach the market in the coming weeks.

Also, make sure to check out our other weekly post, "Trade Of The Week."

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

Allstarcharts Team

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