It's my favorite exercise each month. There is nothing else I do throughout my entire process that provides as much value as my Monthly Chart Review. Here's what stood out to me this month:
Let's start with Papa Dow. The Dow Jones Industrial Average has gone nowhere for 20 months. Flat for over a year and a half:
Click on Charts To Zoom In
Whenever in doubt zoom out. Here is a much longer-term view to really help put things in perspective. All things considered, this 20 month consolidation is perfectly symmetrical with the prior 20 years. What happens if we clear 27000 and hold it? It looks like a lot of upside to me. All of this is consistent with this correction since January 2018 being a cyclical bear market within a longer-term structural bull market. In other words, a shorter-term correction within a longer-term uptrend. That seems perfectly fair:
Here are the Dow Futures, so to clean things up and reiterate the importance of this overhead supply. If we're above 27000, stubborn bears are going to be in a lot of trouble:
On the other side we have the Dow Jones Transportation Average which has underpeformed its DJ Industrial counterpart. Even still, it looks like a similar consolidation that is likely to resolve higher. If we're above 11,100, the risk is higher, not lower. We'll be watching for an upside resolution soon:
The strongest of the Indexes is the Nasdaq Composite. A lot of this has to do with its heavier exposure to Tech stocks vs the other indexes which are exposed more to thinks like banks and energy. We continue to hold above 7600 which I think is a big level. If we're above that, then the likelihood of the two Dow Jones Averages mentioned above to break out is high:
You guys who have been following along the past few years know how important that 325 level has been for the Mid-cap400. This has been a great indicator for a long time. If we're above 325, the risk is up, not down:
From a risk management standpoint I think the Micro-caps are a great one. That resistance in 2015 has been support for a couple of years now. That's standard polarity. If we're below 84 in $IWC I would argue that its the market telling us to ease up and not be as aggressive on the long side as some of us might want to be. If we're above that, then again, I think it increases the likelihood for the Dow Indexes and others to break out to new all-time highs. Although an underperformer for sure, I think Micro-caps are one of the gauges of risk appetite that we have right now:
Broadening things out a bit, the S&P1500 continues to press up against these levels. The more times that a level is tested, the higher the likelihood that it will break. If we're holding above 700 in the S&P1500, we should expect substantial upside in stocks:
I always like to use JP Morgan as another index and a great way to measure risk appetite vs risk aversion. If $JPM is making new all-time highs, I don't want to be betting on stock market crashes. How this consolidation resolves will tell us a lot. In my experience, the higher probability outcome is higher. But we'll wait and see if the market agrees. If we're above 120, it's the market agreeing:
Another Index I like is Berkshire Hathaway. An upside resolution would give us similar signals to the $JPM chart above (As a reminder, these are the two largest components of the S&P Financials Index $XLF):
Now let's look at metals. As it turns out, that was a breakout in Gold. We couldn't be happier with its performance and I think we want to continue to buy any weakness in this space. A retest of those 1900+ highs is what I think is coming (eventually, not tomorrow! relax gold buggers):
Same thing with Gold Miners. Are you going to say we're not breaking out of downtrends? Things are different now:
And $21 coming in Silver? I'm thinking yes:
How about foreign equities? Look at the Euro STOXX 50. Should we not be betting on a breakout here? I think its inevitable:
London's FTSE100 is still above those 1999, 2007 and 2015 highs. If that's the case, what's there to be bearish about?
What about Canada? Holding above those 2014 highs is a big one for me. If we're above that then it's hard to be bearish. We're expecting new all-time highs in Canada shortly. If we're above 15,700 we need to err on the long side with a lot of upside above 18000 in the $TSX:
Here is the Global 100 Index. Is this a normal consolidation above former resistance? Or major, topping, distributive behavior? I think the former:
Even with Interest Rates getting slammed, Regional Banks are still holding above their 2007 highs. It's only if we're below it that we need to worry about much lower prices, in my opinion:
Same thing with Broker Dealers. If $IAI is above those 2007 highs, what is there to be bearish about?
Technology is hands down the leader of the pack. When 25% of the entire S&P500 is making all-time highs and coming out of a multi-decade base, is betting on a crash our best course of action? I'm thinking no. Leaders leading is consistent with higher prices for stocks. "Your best players are supposed to score most of the points" - Todd Sohn.
Industrials remind of the JP Morgan situation mentioned above. Does this look like a top or a continuation pattern? I'm going with the latter:
If the world is coming to an end and the stock market is about to crash, I'd bet it would be the Energy stocks leading us lower. They've been the worst of the worst. So if we're making new monthly closing lows in $XLE it's probably happening in an environment where stocks are struggling. This is similar to the Micro-cap Index $IWC mentioned above. Energy holding would be consistent with breakouts in a lot of indexes we're waiting for:
What about Healthcare? Does this look like a major top or a consolidation that is about to resolve higher? I'd go with the latter:
Staples new all-time monthly closing highs:
Utilities new all-time monthly closing highs:
Real Estate new all-time monthly closing highs:
All of these sectors making new all-time highs is not something we see when stocks are in downtrends. The argument that these are "defensive" sectors leading is one I hear often. The argument for sector rotation being the lifeblood of a bull market is also a valid one here. The question is really whether this is defensive leadership at its final breadth before collapse? Or should we consider that Technology, 25% of the S&P500 (and not "defensive"), has also been leading. Consumer Discretionary and Communications are right there too, the latter of which is driven by large weightings in Google $GOOG and Facebook $FB, neither of which we consider to be "defensive".
Make your own judgement here, but where I come from, new all-time highs are not a characteristic of downtrends.
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