January Strategy Session: 3 Key Takeaways

Steve Strazza
January 4, 2022

From the desk of Steve Strazza @Sstrazza

We held our January Monthly Strategy Session Monday night. Premium Members can access and re-watch 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. New Highs Everywhere

As we enter the new year, it’s important to take a step back and evaluate the direction of the primary trends.

Although messy price action has plagued most risk assets through 2021, the structural trends remain intact. In fact, on a monthly closing basis, the list of equities making new highs only continues to grow.

There's nothing more bullish than new all-time highs. We’re seeing it across the major indexes in the US and abroad as well as at the sector and industry group level. This is a huge development for the bulls and suggests a healthy degree of risk appetite is present upon us.

The bottom line is that despite all the sideways action in 2021, the structural trends are still pointing up and confirming that it’s a bull market for risk assets.

2. Continuation Patterns Tend To Continue

When we turn our attention away from the US, things get messier. This has been the case for a long time now. 

With that said, international stocks don’t look bad at all. This is especially true on a local currency basis. Many major indexes have been coiling in flag patterns for some time. And these consolidations are just continuation patterns within the context of primary uptrends.

Corrective action like this is not just constructive but necessary from time to time. 

For now, most international markets are moving sideways. We're seeing some upside resolutions here and there, but we aren’t seeing much in terms of downside resolutions. Our bet is that the rest of these continuation patterns will eventually resolve higher, in the direction of the primary trend.

If and when we start to see more and more of these charts resolving lower, it will warrant a more cautious outlook.

3. How Long Will US Leadership Last?

So, on an absolute basis, both US and ex-US equities look healthy. But when we compare the US to global equities and look at the relative trends, it’s all about the US still. This has been the case for over a decade, and we’re still not seeing any significant evidence that it’s ready to change. 

We’re using the emerging markets versus S&P 500 ratio to illustrate this theme, but just about any international index relative to the US looks the same right now.

This means that market participants are still favoring US stocks over their international peers. And they appear to be overweighting them aggressively, as many of these ratio charts have been collapsing to new record lows in recent months. 

Whether this is sustainable or not isn’t what matters. When the evidence starts to shift, we can shift our positioning. Until then, the edge remains with US large-caps. And that’s where we want to be as we head into 2022.

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

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