Key Takeaway: Mixed liquidity backdrop makes rebuilding risk appetites more of a challenge. Tailwinds that have fueled cyclical strength are tapering even if the Fed is not yet ready to. Breadth on a slippery slope from digestion to deterioration to downtrend.
While the indexes themselves continue to hold up relatively well, there is evidence of deterioration that cannot be overlooked from a tactical perspective. Whether this builds into a situation that argues for more defensive positioning from a cyclical perspective remains to be seen.
We've already had some great trades come out of this Small-Cap focused column since we launched it late last year and began rotating it with our flagship bottoms-up scan, "Under The Hood."
To make the cut for our Minor Leagues list, a company must have a market cap between $1 and $2B. After applying price and liquidity filters, we simply sort by proximity to new highs in order to focus on the best players.
The ASC team had a post out last week highlighting some bullish developments here, and the strength continues in early trading this week. And one stock, in particular, is threatening new all-time highs coupled with declining options prices --- my favorite kind of setup.
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 context of the big picture 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.
Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Europe Stands Strong On The Global Stage
European equities are in the process of staging a reversal relative to global equities after forming a formidable base. If this ratio of the FTSE Europe ETF can decisively move above this downward sloping 7-year trendline, this would confirm the beginning phases of a new structural uptrend for a region that has acted as a perennial laggard in a Growth dominated environment.
Now that we’re finally witnessing rotation into Value areas like Financials and Natural Resources, Europe no longer is being anchored down by its constituents. That exposure is swiftly becoming a powerful tailwind.
The process of our analysis is such that we look at a variety of charts in order to arrive at a view at any given point in time. To make sure we're identifying new trends that are developing in the market, we have several breadth indicators that we track.
As we already know, the market has been in a bit of a mess off-late. Within this market move, different sectors have taken leadership- almost as if playing a game of musical chairs.
Over the weekend when I was going through the usual suspects (charts) I noticed a slight change in market activity. So here I am talking about it!
This week we're looking at two long setups this week. One in the Chemicals space and the second one in the Auto sector. While Chemicals have been among the gainers over the past few weeks, the Auto seems to be catching a bid off late.
We retired our "Five Bull Market Barometers" in mid-July 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
Gold has been one of the last places we have wanted to put our money over the past eight months, second only to Bonds.
Other areas of the commodities space, like Base Metals, Energy, and Ags, along with risk assets in general have experienced an explosive rally. While Precious Metals have gone nowhere. But are we starting to see signs that this could be changing?
Last week we pointed out that Lumber had reached our target and could be due for a pullback. And we’re seeing that play out.
Every streak comes to an end. After a record 243 consecutive days of positive readings, the US economic surprise index slipped below the zero line this week. For a mean-reverting index that has historically spent as much time above zero as below zero, this was a remarkable stretch of better than expected data. While the data now is as strong as it has been at any point in the last year (in some cases, decades), expectations have now surpassed reality and so the surprise index is moving lower. This removes what had been a tailwind for equities and allows for a test of the resiliency of the current rally. Coupled with the tightening financial liquidity conditions and changing risk appetites, this could make for a choppy summer in the stock market.
I'll be honest with you. I've been on cruises before. I don't think I have a need to ever do them again. I mean, the time spent "in port" was where the real fun for me was. Time trapped on the boat? Meh.
But, I know many people disagree with me and LOVE going on cruises.
I'm fine with that. Especially if it gives me an opportunity to make some money. And we've got one such opportunity on board!
