From the desk of Steve Strazza @Sstrazza

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.

Using Caterpillar And Copper As A Risk Barometer

On the topic of high-beta names, here’s a behemoth from the Industrial sector. We think of Caterpillar as an index in and of itself - a barometer for global economic growth, reflation, cyclicality, etc. It’s all reflected in CATs stock price, as it is highly correlated with risk assets such as Copper and Emerging Markets. The stock recently made its first lower low in over a year, suggesting we continue to approach these offensive areas with caution. We’ll be watching to see if Copper, and others... even risk-on forex pairs like the Aussie/Yen, will continue to follow Caterpillar’s path. How much structural damage is endured before we get a tradeable bottom in these assets will provide us valuable insight regarding the future market environment for risk-taking.

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This week we're looking for a long setup in the Consumer goods sector. With the market finding its way around, defensives like Consumer goods are picking up pace.

Today we will share one such idea that stands out from a risk-reward perspective.

It's Saturday Morning Chartoons time. You can read more about the reasoning behind this post here. 

We're just interested in aggregating all of the charts we put together throughout the week and organizing them all into one, easy to flip through deck.

One thing that stood out to me this week was this table of new highs and new lows. It's a great way to visualize what's going on underneath the surface:

I also see here how investors have way too much exposure to stocks, compared to historical measures. We're seeing this in other sentiment data too.

But here's the Household Asset Allocation Stocks vs Bonds ratio:

And finally, I came across this old gem to remind us how important relative strength is for stocks and sectors in the market. Or in this case, a lack of relative strength.

There were plenty of warning signs in financials, particularly Lehman and Bear...

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

Whether you trade commodities or not, it’s been impossible to ignore the recent sell-off in Lumber, as prices have collapsed almost 30% in just the last month.

We pointed out in May that Lumber was due for a digestion of its recent gains.

Well, let’s just say we got a lot more than that! Sometimes markets correct or consolidate through time, and sometimes they correct through price.

And Lumber is most definitely correcting through price!

But Lumber is not the only procyclical commodity to enter a corrective phase. More recently, DR. Copper has begun to digest its recent gains through price as well.

These corrections have already done some damage to the primary uptrends at play as both of these economically sensitive commodities have recently violated critical support levels.

Another point we raised last month was that many...

From the desk of Willie Delwiche.

As the weight of the evidence has shifted from bullish to neutral in the first half of 2021, active investors can find more solace in moving to the sidelines and holding on to a little more cash. This week may have intensified that feeling. Commodities suddenly seem bidless, the S&P 500 has moved from an all-time high to testing its 50-day average over the course of a week, and bonds sold off then reversed course, sending the yield on the 10-year T-Note to its lowest level since early March. Dramatic moves across stocks, bonds and commodities this week can obscure the trends that have emerged over the past six months. Commodities & stocks have been strong and bonds have been weak. That may very well change as we move into the second half, but let’s not overlook the path that has gotten us to where we are this year. So with just a handful of trading sessions to go in the first half, we still have the broad commodity ETF up 27% YTD, with SPY still carrying a double-digit gain and AGG still in negative territory....

This is the video recording of our June 18, 2021 All Star Charts Crypto Weekly Strategy Session.

One of the most telling and obvious risk-on indicators would be the Nifty Small Cap 100 index. Why is that so?

Because when you look at a market rally, the longevity of that particular rally can be gauged by market participation. This is something that should be viewed closely. If a particular index is making new highs, how many stocks are contributing to that move?

Is it a handful? Is it a majority of the stocks? These are data points that will hint at the inherent sentiment of the move.

So let's take a look at what the Small Cap-100 new highs are telling us.

Breadth indicators are important to see the internal structure of a market move. We get valuable insights from what we see that can help us determine the strength of the trend.

First up let's take a look at the most immediate tactical view. Let's take a look at the % of stocks making new highs//lows over a 10-day period. What we find is that as the Small cap 100 index clocked new highs, the % of stocks making 10-day highs contracted. On the other hand, we got a minor expansion in the % of stocks making 10-day lows.

That is certainly not the trend you'd like to see. You'd want...

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

We’ve pounded the table about historic breadth thrusts since we first saw these readings start to pop up in early June of last year.

It's now a year later, and we're still seeing them... In fact, the S&P 500 recently registered its highest percentage of new 52-week highs in history - absolutely crushing the historic reading we saw in Q4 of last year.

So, why is this important?

These extreme readings are as bullish as it gets and are a very common characteristic of the early innings of a fresh bull market. It's as simple as that, right?

Well, yes... But, not exactly...

While these extreme readings in our breadth indicators are undeniably bullish looking out over any period of more than a few weeks/months, over the very near-term these same bullish developments are actually cautionary signals and are often evidence of exhaustion and tend to be followed with some...

From the desk of Steve Strazza @Sstrazza and Grant Hawkridge @granthawkridge

Thanks to everyone who participated in last week's mystery chart.

We asked whether this chart had the momentum to finally reverse course and break loose from the grips of its primary downtrend.

The responses were mixed, with many wanting to wait for more information... In many cases, looking for confirmation of the impending breakout.

Well, not much has changed as the chart has yet to make a decisive move from this key level.

The chart was a weekly candlestick view of the MSCI Frontier Markets ETF $FM.

Let's dive in and see how we want to play this index comprised of stocks from some of the least developed countries around the world.

This is the video recording of the June 17th Town Hall Meeting w/ Willie Delwiche

06/17/21 2PM ET

From the desk of Willie Delwiche.

I planned on writing about how fishing is a great metaphor for investing. 

But I’ll have to tackle that idea another day. 

Today, I’m thinking about fishing not as a metaphor for investing, but as a metaphor for not investing -- actively stepping away to preserve financial capital. Perhaps even more importantly, stepping away to rebuild mental capital. 

Whether it's casting for trout in Oregon or trolling for salmon in Lake Michigan, getting away from our screens and electronic gadgets and connecting with the water is clarifying and restorative. It’s not just about the catch… 

Beyond fishing, it's important to cultivate places where we can get away from it all, even if for just a few moments. We need to find places where we can set aside the active wrestling with trends and troubles. Places where we can catch our breath, clarify our thoughts, and reinvigorate our souls.