We held our August Monthly Strategy Session Wednesday 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. The Catalyst
It wasn’t the CPI print, or the non-farm payroll, or the Fed… It was the US Dollar.
The major US stock indexes have enjoyed quite a rally since the dollar stopped rising.
It’s not the ideal scenario for stock market bulls, but it’s a legitimate possibility.
Let’s keep it simple. If DXY is below 101.50, we like buying stocks aggressively.
On the flip side, if DXY is above that level, we want to lean into the rotation beneath the surface (energy and other cyclical sectors) while steering clear of the major indexes.
That’s where we find the market today, and it’s not surprising as H1 leadership groups reach logical levels of resistance.
2. Overhead Supply Halts the Advance
The rally is running out of steam as the Nasdaq 100 $QQQ is coming off its best first half in history.
As you can see, an overwhelming amount of selling pressure came in this week, rejecting price in the 380 area.
This level represents a former high from mid-2021, making it our line in the sand for the QQQ.
If there is a place for growth to digest recent gains, this is it. We should not be surprised to see some corrective action in the coming weeks.
We continue to monitor the intermarket landscape and the recent base breakouts among tech names for insight into the extent of the coming correction.
For now, it’s nothing more than a welcomed pause after an explosive rally.
3. Which Sector Will Lead in the Back Half of the Year?
We’ve been pounding the table on a sector rotation over the past few weeks.
A great way to visualize this theme is through the bubble chart below, which shows the first-half performance on the Y-axis and the second-half performance on the X-axis for the equal-weight sector indexes:
Technology $RSPT Communications $RSPC, Discretionary $RSPD, and Industrials $RSPN led the way higher during the first six months of the year. However, since July, money started to flow out of these groups into more cyclical sectors, such as Energy $RSPG and Financials $RSPF.
While it is still early in the cycle to overweight these value-oriented areas, the evidence continues to build that this could be the place to be in the back half of the year. Regardless, it reveals the best fishing holes over the trailing month.
And like absolute trends, relative trends often persist.
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!