May Strategy Session: 3 Key Takeaways

May 3, 2024

From the Desk of Steve Strazza @Sstrazza

We held our May Monthly Strategy Session earlier in the 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. False Start or Failure

Failed breakouts are everywhere these days.

From the major averages shown below, to the SPDR sector ETFs, to international indexes and individual stocks... we keep seeing the same pattern.

Here is the Equal Weight S&P 500 $RSP and Equal Weight Nasdaq 100 $QQEW failing to hold their former highs:

In March, both RSP and QQQ reclaimed their prior-cycle highs. In April, sellers showed up and these breakouts failed.

We're seeing so many key indexes and risk assets struggle at their former highs right now that we've made a checklist to track them.

Until we see more of these levels recaptured, the tape is likely to remain messy and patience will continue to pay.

2. Can Bonds Stop the Bleeding?

The trend for interest rates remains undoubtedly higher.

The chart below shows the US 10-yr Yield putting in its second highest monthly close since the summer of 2007:

As long as this is the case we want to stay away from bonds and focus on areas of the market that fare best during a rising rate environment.

The resilience from risk assets amid a rising dollar and higher rates this year has been impressive.

We don't want to bet on this divergence lasting for long. The big question is simply how it clears itself up: by stocks moving lower or rates rolling over?

3. Metals Make a Run

Historically, when Gold is doing well Copper isn’t too far behind. Commodities trend together as a general rule.

Below, we’ve highlighted Gold printing fresh all-time highs and Copper testing the upper bounds of a similar multi-decade basing pattern:

Copper is a bellwether for industrial metals and will likely lead the complex higher.

As long as Gold is above its prior cycle highs, we’re betting that Copper will make a decisive upside resolution in the coming weeks to months. We think commodities continue to shine into the back half of 2024.

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