January Strategy Session: 3 Key Takeaways

Alfonso Depablos, CMT
January 9, 2024

From the desk of Steve Strazza @Sstrazza

We held our January Monthly Strategy Session last week. Premium Members can access and rewatch it here.

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. Failed Breakouts on the Horizon?

After a solid year-end rally, U.S. equities have taken a pause as many leadership indexes and areas challenge their former highs.

The chart below is an excellent representation of this theme as it shows the Nasdaq 100 $QQQ struggling to hold above its 2021 highs, threatening a failed breakout.

This not only applies to major indexes but sensitive groups such as semiconductors, home builders, broker-dealers, and industrials must hold their recent breakout.

If these groups fall below their respective overhead supply zones, the path forward will likely include more corrective action. How long it takes is the question...

In the event that this theoretical environment becomes a reality, positioning less aggressively will be the only appropriate action.  

2. It's Still a Dollar Story

The US Dollar Index $DXY remains the biggest actor in this movie due to its seemingly perfect inverse correlation with equities.

After falling for three straight months, the greenback is finally catching a bid at a shelf of former highs from 2016 and 2020.

A bout of USD strength off this support zone makes sense, especially considering that the current level is packed with price memory. This is the exact place where price stopped falling and reversed in July last year.

As long DXY trades above the 100-103 range, we have to give the dollar the benefit of the doubt. Under this scenario, any near-term bounce likely produces stiff headwinds for global risk assets. 

However, a decisive breach of this polarity zone would benefit stocks.

3. International Stocks Break Out

The list of countries making new highs keeps on expanding, and the STOXX Europe 600 Index is a wonderful illustration of this theme.

After such an extended period of underperformance versus the U.S., international stocks are finally beginning to flash buy signals.

More and more countries participating in the bull market is exactly what stock market bulls want to see. 

The STOXX Europe 600 Index is well-diversified in the sense that a swath of countries and sectors are represented.

Furthermore, it’s not just Europe that’s breaking out. Regions like Latin America, the Middle East, Asia, and much more are showing strength as well. They are not included in this index.

As the bull market progresses, we think it’s prudent to look beyond the U.S. for stocks to buy and look to countries like Argentina, Japan, Germany, and other world leaders.

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

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