June Strategy Session: 3 Key Takeaways

June 6, 2022

From the desk of Steve Strazza @Sstrazza

We held our June Monthly Strategy Session last Thursday night. Premium Members can click here to access the recording and the chartbook.

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. Intermarket Implications

If you’re expecting to make money owning risk assets into the back half of this year, you’re probably betting on the dollar rolling over.

Depending on what stocks you own, you’re probably betting on lower rates too.

The Dollar Index $DXY and US 10-Year Yield $TNX are the two most important charts on the planet right now, and they’re both correcting:

If these two critical areas of the market catch lower, it should provide a much-needed boost to a stock market still grappling with selling pressure.

A weaker dollar lifts all risk assets, while lower rates should put a bid in the most beaten down areas, primarily tech.

On the other hand, if DXY makes a valid upside resolution from this seven-year range, we anticipate further downside from stocks and more corrective action from commodities.

2. Can Value Make a Save?

Small-cap value $IWN is another important chart right now. It’s not so much that small-cap value has been leadership, but these stocks have held up better than their growth stock peers.

As we like to say, they have simply been “less bad” than the rest. As such, when this index resolved lower from its topping formation in April, it was a big feather in the hat for bears.

After rallying for the last two weeks, IWN has repaired that damage and reclaimed the lower bounds of its old range:

It is now back in the box. As long as this is the case, this pattern isn’t a top at all… it's a failed top. We're watching closely to see what kind of follow-through we get in the coming days and weeks.

Bulls want to see more distribution patterns turn out to be failed tops like this one.

For now, it’s a small list. But it’s growing.

3. Bears Can’t Break the Banks

We can’t have a conversation about distribution patterns without mentioning the banks. After all, it’s hard to have a bull market without these stocks.

Whether it is community banks $QABA, regional banks $KRE, money-center banks $KBE, or even European banks $EUFN, they're all digging in at the lower bounds and holding their ranges.

This is constructive price action:

Bulls don’t want to see these critically important stocks resolve lower and join our list of completed tops. While the smaller banks (QABA and KRE) found support at their 2021 lows in May, the large-cap banks (KBE) slightly undercut their former lows before ripping back above this level.

We’re watching to see if we get a swift reaction higher on the heels of this failed move. We saw something similar from European banks in March. EUFN has yet to make a new low since.

As long as these ranges remain intact for the banks, the world isn’t coming to an end any time soon.

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