August Strategy Session - 3 Key Takeaways

JC Parets
August 5, 2022

At the beginning of every month, we tune out all the market noise and zoom out. We zoom out, because these calls that are held in the first week of the month, focus on monthly charts. So we're basically looking at long-term trends.

Our Monthly Strategy Session Call concluded early this week. Premium members can access the call recording here.

For non-premium members, don't worry- we haven't forgotten about you! You can check out our posts highlighting the top 3 charts that month, in posts like these!

Win-win?

Let's get right into it, shall we?

1.  Dollar Index in the driver's seat:

The first chart we're looking at is the S&P 500 and the Emerging Markets Currency ETF $CEW.

With the Dollar Index rally hitting a pause, the Emerging Markets Currency ETF just about managed to hold on to multi-year support. What we see here is the CEW bouncing back from a crucial support zone, along with the S&P 500. The impact of the Dollar Index is visible clearly.

The support has acted as a good trampoline for the CEW with stocks rallying strongly post the bounce. Going by how things panned out in 2016 and 2020, a bounce back here could result in a rally too.

However, if the ETF does slip below the support, then we're in for a lot more pain in the market.

2. Breadth Charts getting interesting again:

The next chart we're looking at is the Percentage of new 21-day Highs/Lows in Nifty 50. For a while there, there wasn't much movement when it came to breadth charts. We the average move come and go.

In the last week of July, we could see some breadth thrusts as the market participation grew within the Nifty 50 index.  Here, you can see that close to 50% of stocks made new 21-day highs. Now while 21-days obviously counts for a short-term trend, these breadth thrusts will make their way to the short-term time frames before heading into 6-month o 52-week periods. It becomes important to track these moves on all time frames. If this translates to 42-day highs and 63-days and so on, then we know the trend is getting stronger!

3. Small-Cap stocks making an appearance:

A bull or a bear market rally becomes a rally only when there is participation from the broader market. Specifically, when Mid-caps and Small-caps join the market trend, the move becomes stronger.

Here we have the Percentage of stocks above 50-DMA among Small Caps, breaking out of a downward sloping trendline. Patterns are important no matter where they form. So if you're seeing pattern breakouts in price or indicators, they're worth noting.

Here we get the signal that almost 90% of Small caps are trading above their 50-DMA and that is a significant number! This breakout wouldn't take place in a 'doomsday' market now, would it?

These were the most notable developments we observed in our Monthly Strategy Session.

What are the most important charts you're tracking?

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

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