While everyone focuses on the S&P 500 finding resistance at its 200-day moving average, bonds are posting their most substantial rally since the early 2020 peak.
Treasuries have represented downside risk for almost two years. We get it. Nobody's wanted bonds!
The long-term Treasury bond ETF $TLT has gained almost 20% since late October. In the process, it registered its largest four-week rate of change in a decade (aside from the covid related volatility).
This is what a momentum thrust looks like:
Notice the previous rallies in mid-2021 and earlier this summer (highlighted in yellow).
As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!
One way we're doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn't just end there.
We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
This recent risk-off move in the equities market was textbook.
It's no coincidence the S&P 500 sold off at the channel resistance and AVWAP off the highs. We're more or less seeing a confluence of developments skew risk-off over the last few weeks.
The US Dollar Index is at a logical level to bounce, while cyclicals, which have been leaders in the equity markets, are pausing at their August highs.
Meanwhile, most crypto assets are retesting their June lows from the underside.
In Bull Markets we see more stocks making new highs.
That's just math right?
And when we talk about new highs, you'll often hear people discussing the new 52-week high list.
Until recently, this list was almost non-existent.
So while there's definitely a ton of more action there, we should really be seeing an expansion in new 1-month highs and new 3-month highs.
Crawl before you walk.
If this stock market rally has legs, more new highs is just mathematically necessary for that to occur.
It's a market of stocks.
Here's the 3-month high list on the New York Stock Exchange. An expansion in upside participation will go a long way in proving that, yes, in fact the path of least resistance is higher:
Portfolio Update: In our Cyclical portfolio we have moved global equity exposure from Latin America to Europe while in the Tactical Portfolio we are reducing energy exposure to take advantage of shifting global leadership and improving trends from the metals.
The S&P 500 continues to make lower highs as new lows have approached, but not broken below, new highs. This breadth signal occurred as the S&P 500 was peaking in January. It re-emerged near the March and August highs and appears to be doing so again.
