June Mid-Month Conference Call: 5 Key Takeaways

1. Bullish Participation Expands

Bull markets are built off of more stocks making new highs than new lows.

When we analyze what is happening beneath the surface, we see more stocks making new 52-week highs than at any time in over a year.

This tells us that more and more individual stocks are participating to the upside, supporting the new highs at the index level.

This expansion in participation at the individual stock level speaks to the broadening of the current rally and suggests higher prices for equities in the future.

2. Industrials Knock on the Door

At a sector level, our eyes are on industrials as XLI presses toward its old all-time highs.

The industrial sector has the strongest correlation to the overall market throughout history. For this reason, the index is an excellent tool for confirming the price action of the broader equity market.

As you can see, price is pressing against the upper bounds of a multi-year base as buyers try to take out this level and send prices out of the range to new all-time highs. This is something not too many sectors and industry groups can say right now.

If and when XLI breaks out of this formation, it wouldn't be a surprise to see more and more groups follow suit. After all, all-time highs are characteristic of bull markets.

3. Crypto Catches Higher

Correlations come and go.

One of the most prevalent relationships over the past few years has been between Bitcoin and technology stocks. 

However, since April, this correlation has severely dislocated.

Here is a look at the Large Cap Technology Sector SPDR (XLK) overlaid with Bitcoin (BTC):

While XLK has been screaming higher, BTC has made a series of lower highs and lower lows in recent months.

Following this short-term divergence, we want to bet on the correlation reasserting itself. With Bitcoin up over 15% the past few days, it looks like it is already happening. We expect it to continue to close the gap in the coming weeks and months.

4. European Equities Remain Strong

International equities have been on fire this year as participation expands overseas.

Whether you look at Europe, Asia, or Latin America, the charts look similar.

Below is the German Dax Index knocking on the doors of a historic breakout.

After a year of absolutely no progress, buyers are working on absorbing all the overhead supply at the upper bounds of the base.

Notice that the makeup of the index is made up mostly of value-oriented industries such as industrials, chemicals, and insurance.

If and when buyers take out this critical resistance level of 16,000, a fresh leg higher in German stocks will be underway.

5. Add CEW to the New 52-Week Highs List

The US dollar index (DXY) is sliding toward the lower bounds of its multi-month range. Unlike previous tests of this boundary, evidence is mounting in favor of a downside resolution.

The euro is trending higher. Key commodity currencies are reclaiming critical polarity zones. And the Emerging Market Currency ETF (CEW) is printing fresh 52-week highs.

The bearish-to-bullish reversal in CEW speaks to increasing risk appetite and expanding participation beyond the components of the US dollar index.

Both implications bode well for global risk assets – stocks and commodities. If these EM currencies and their Developed Market counterparts continue to trend higher, there’s only one place for the US dollar to go – lower.

That’s a prospect stock market bulls can get excited about.

As always, Premium Members can rewatch the Conference Call and view the slides here!

We hope you enjoyed our recap of this month’s call. Thanks for reading, and please reach out to us with any questions!