November Mid-Month Conference Call: 5 Key Takeaways

1. It’s All About the Dollar

The negative correlation between US equities and the US Dollar Index (DXY) remains intact, representing a fundamental piece in our intermarket puzzle.

Below is a chart of the S&P 500 and DXY dating back over the last year and a half.

As you can see, stocks enjoy strong bull markets when the dollar trends lower. Conversely, SPX tends to fall under selling pressure when the dollar strengthens.

The fact that the dollar has been trending steadily lower since October 3rd is a bigger feather in the hat for equity bulls.

2. Sentiment Reset

The market is designed to fool the majority of investors most of the time.

This chart shows our sentiment composite index ripping back into the “opportunity range” after a textbook seasonal correction that began in July.

With pessimism still latent among market participants, it is an excellent environment to buy stocks.

This kind of reading supports the bullish price action we have seen in recent weeks and should give the market the proper fuel to continue the current rally into year-end.

3. Semis Hit a New High

Semiconductors are considered the most critical risk-on stocks in the world as they are the lifeblood of the modern-day economy.

As you can see, the Semiconductors ETF $SMH recently completed a year-long consolidation, resolving to new all-time highs:

Seeing this leadership index make new highs reinforces an upward bias for the stock market and risk assets in general.

We can't think of a better industry group to overweight for the remainder of 2023. As long as SMH holds above these former highs, more outperformance is to be expected.

4. Investors Pull the Goalie

We've been pounding the table on the lack of relative strength from defensive groups in the last few weeks.

These are staples, utilities, and low-volatility stocks. When they underperform, the broader market tends to rally. The opposite is true when these names outperform, which typically occurs when the market is under pressure.

Today, the relative trends of Low Volatility vs. the S&P 500 (SPLV/SPY) and Consumer Staples vs. the S&P 500 (XLP/SPY) are pressing against new lows.

Seeing these ratios point lower suggests risk assets will likely enjoy an increasingly risk-on tone until the end of the year.

5. Overwhelming Demand for Cryptocurrencies

As we search for evidence to confirm that a sustained bull market is underway for risk assets, cryptocurrencies provide tremendous insight. 

How bad can things be if one of the riskiest asset classes is making new 52-week highs across the board?

After building a base for over two years, Bitcoin resolved higher in late October. In the weeks since, it has grinded steadily higher, printing new 52-week highs in the process. 

But it’s not just Bitcoin making moves these days. As our breadth measure in the lower pane shows, just about 100% of coins are above their respective 200-day moving averages.

The evidence suggests that we are closer to the beginning than the end of this crypto bull market as buyers continue to pour back into the market and push prices higher. 

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!

All Star Charts Team