August Strategy Session: 3 Key Takeaways

August 3, 2021

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

We held our August Monthly Strategy Session last night. 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. Pockets of Strength in Cyclicals

There’s no question that the market is an absolute mess.

Some stocks are going up, while other stocks are going down. At the same time, we see an expansion in new highs in the Nasdaq 100, while we see an expansion in new lows in Russell 2000 $IWM.

It’s a bifurcated market and has been for months now!

But there are pockets of strength. You just have to find them.

Here’s one from the Financial sector. This is a long-term view of the Broker-Dealers & Exchanges ETF $IAI:

These are the leaders within Financials, so if cyclicals are to make a move here, we’d expect to see continued strength from this group. And judging by the fact this ETF just registered its 6th consecutive monthly closing high, it looks like we’re headed in the right direction.

2. The Commodity Supercycle is Still Intact

We can't think of a better place for stocks to peak relative to commodities than crude oil trading below zero!

When price action reaches extremes, it's usually at critical inflection points that mark major trend reversals. In this case, it sparked the beginning of a Commodity Supercycle.

And that supercycle is still intact as stocks continue to make new lows relative to commodities sixteen months after they peaked.

Our line in the sand in the CRB Index is 200. If we're above 200, it's tough to be bearish commodities.

However, it's undeniable that...

3. Risk Assets Are Still Facing Overhead Supply

That’s right. Emerging Market ETF $EEM and Regional Banks ETF $KRE need to stop making new lows. In fact, they really need to repair the recent damage and reclaim our risk levels at the 2018 highs.

These two areas of the market are crucial to the global growth theme and rotation into cyclicals.

We can’t imagine a world where international markets, especially the financial heavy markets of Europe, are doing well if both EEM and KRE are stuck below their 2018 highs.

So the question here is simple:

Are these valid topping formations and price breaks down further from here?

Or, do these breakdowns fail, in which case we’re likely to see a swift move higher?

Only time will tell. But these are both key data points, so we’ll be watching closely in the days and weeks to come.

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