In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Major Levels
The Dollar Index and rates are the two most important charts on the planet right now, and they’re both rolling over. If these two critical areas of the market catch lower, it should provide a much-needed boost to a stock market still grappling with selling pressure. A weaker dollar lifts all risk assets, while lower rates should impact the most beaten down areas, primarily tech. If these tops resolve lower and stocks don’t catch a bid, it raises an important question: What will it take for stocks to rally?
Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.
By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.
Let's jump right into it with some of the major takeaways from this week's report:
* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.
We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Not all indexes are created equal… But, some are equal-weighted.
We like to use the equal-weight versions as they level the playing field among components and give us a more accurate view of the participation within a given universe.
This balanced approach adds a crucial layer to our analysis.
Friday, we highlighted our custom commodity index which assigns the same weighting to thirty-three individual contracts. As we would expect, it’s moving in lockstep with the 10-yr breakeven inflation rate. Both are rolling over in the near term.
Interestingly, the energy-heavy CRB index is not following the same path. It's trading at new highs.
It was comparing the current circumstances to what happened in 2010.
If you recall, the stock market ripped off those March 2009 lows, then in 2010 looked like it was completing a major top, but didn't, and then prices exploded higher instead:
It's been about over a week that the market has churned sideways. In every sideways market move, there are some areas of strengths and weaknesses.
Currently, we're looking at a minor strength coming through in the Auto index. There have been some signs of this strength off late. But we're going to focus on just a few charts here to communicate what we're referring to here.
The Auto index has been moving sideways for longer, compared to the broader market. Presently, the index just about marked a new high since February this year.
We can see in the chart below that 10,400 has been a crucial support zone for the index. Bouncing off the same level, the price is now making a move towards its resistance near 12,130. In this move, certain stocks have displayed strength in the current market environment.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Nobody likes inflation.
The costs of day-to-day necessities rise. Long-forgotten and disliked sectors of the market start to outperform. And many of the cool tech names that were a must-own for every portfolio turn into a pile of hot garbage.
Now that everyone – even the Fed – agrees the current inflationary environment isn’t transitory, cries of a near-term top in inflation have emerged.
Yes, breakevens and inflation expectations have peaked and are beginning to roll over. Whether this will turn into a substantial downturn in the coming weeks and months is anyone’s guess.
Instead of playing the guessing game, we’re focused on commodities – the assets that benefit most from inflationary pressures.
Here’s what we’re seeing.
This is a chart of our equal weight commodity index overlaid with the 10-year breakeven inflation rate:
Our International Hall of Famers list is composed of the 100 largest US-listed international stocks, or ADRs.
We’ve also sprinkled in some of the largest ADRs from countries that did not make the market-cap cut.
These stocks range from some well-known mega-cap multinationals such as Toyota Motor and Royal Dutch Shell to some large-cap global disruptors such as Sea Ltd and Shopify.
It’s got all the big names and more--but only those that are based outside the US. You can find all the largest US stocks on our original Hall of Famers list.
The beauty of these scans is really in their simplicity.
We take the largest names each week and then apply technical filters in a way that the strongest stocks with the most momentum rise to the top.
Based on the market environment, we can also flip the scan on its head and filter for weakness.
Let’s dive in and take a look at some of the most important stocks from around the world.
In a year marked by broad weakness in both stocks and bonds, commodity strength has provided some portfolio ballast for those who have been willing and able to expand their asset allocation opportunity set. After several weeks of consolidation, the CRB commodity index is again making new highs. But rally participation looks to be narrowing. Only 12% of the commodities in our ASC Commodities universe have made new 52-week highs in the past two weeks. This was as high as 50% earlier this year. Perhaps not surprisingly, our equal-weight commodity index has not confirmed the strength in the CRB index (which has heavy tilting toward energy-related commodities). I think Bob Farrell’s Rule 7 applies here: “Markets are strongest when they are broad and weakest when they narrow.” Strength in the CRB index is more likely to persist if it’s not just energy fueling the advance.
