How's your retracement?

JC Parets
September 5, 2022

Stocks had a ripper of the June lows, and now many markets have digested those gains.

How they correct, and how they digest gains, gives us a lot of information.

To help put things in perspective, the S&P500 has retraced exactly 61.8% of the entire rally of the lows.

This is a perfectly normal correction:

And you can see the same for the Nasdaq.

It has also retraced exactly 61.8%:

While it's great to look at the major indexes, I find even more value looking underneath the surface.

Which areas are holding up best?

On the more positive side of things, notice how Discretionary vs Staples couldn't even retrace 1/3 of the rally. Also notice how the major indexes above bottomed in June while this ratio bottomed in May, reiterating it's importance and leadership characteristics:

Also on the stronger side is Energy:

And of course Utilities.

Both of these have held up better than most:

The loser once again is Communications.

Look how much more Communications has retraced compared to some of the stronger sectors, and even the major indexes.

Is the market back to its old tricks?

Look at the Sector performance since August 16th when the S&P500 put in its local top.

The best performers are the best performers from the first half of this year. The worst performers are the worst performers from that period as well.

This looks eerily familiar:

If this is 2008 all over again, and the market is going to collapse into the fall, I would expect the culprits to be the first ones breaking down.

If you start to see Communications, Social Media, ARKK funds and some of these other previous losers, breaking down to new lows, then I think we should expect other sectors and even the indexes to make new lows as well.

These are the financials of 2008 or Technology of 2001.

We look to them for leadership, to the downside in this case.

But I would also point to that relative strength out of Discretionary vs Staples as something to watch here.

Summer is over.

The big boys are back from vacations.

It's football season.

Who's going to come out swinging, the buyers or the sellers?

We'll be going over all of it this upcoming Tuesday 9/6 @ 6PM ET during our next Live Video Conference Call.

Premium Members can register here, if you haven't already.

If you still don't have access to Premium, just give us a call at 323-421-7991 and the team will hook you up.

Tuesday's call is going to be an important one.

So if it's easier you can also contact us here to join.

See there!

- JC

 

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