There has been a lot of talk about the potential implications on the broader market if Mega-Cap Growth and Technology stocks were to lose their leadership. Since they have been responsible for driving much of the gains in the major averages for years now... we can only ask ourselves, who might pick up the slack if and when this happens?
In this post, we're going to analyze the top-performing areas today and compare them to their strength before the market crashed in February and March.
We'll also look at the leaders from back then and see how they're holding up today.
This will give us an idea of whether we really are undergoing a change in leadership or not, and if so, where the new areas of strength are.
The broader markets are starting to show signs that we may be setting up for some sideways-to-down chop.
And one sector that is likely giving investors fits is the financials. During this recent "recovery," $XLF has continually been underperforming relative to the S&P. JC shared this chart today highlighting this observation:
With Financials, arguably America's most important sector, making lower lows relative to the rest of the market, it's hard to see them emerge as new leaders. New decade+ relative lows in $XLF is not what you want to see if you think the stock market is going a lot higher. It's actually the opposite.
I look at Regional Banks and wonder, Is this a major bottom? Or is this just a normal consolidation within an ongoing trend? So then I look at momentum in a bearish regime, and its parent sector, Financials, breaking down to the lowest levels relative to the S&P500 since March of 2009:
For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!
We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.
You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?
As Market Technicians, we don't like catching falling knives. Today we want to reiterate several areas of the market that we either want to stay away from completely or even be shorting if you're into that sort of thing.
Plus we'll add a new index sector to our watchlist that's in danger of becoming a "falling knife" of its own.
Here's the leader of the weakest stocks, Nifty PSU Banks, breaking down to new all-time lows on an absolute basis. When bullish momentum divergences fail to spark any sort of upside traction, that shows that sellers are remaining aggressive even at lower prices and that the downtrend remains firmly intact. If prices are below their recent lows of 1,220 then we're looking for further downside towards 1,010.
Gold (GLD) broke out of a multi-year base last year and has more or less been trending higher since. No new news there.
But as JC explained in a post last week, Gold Miners (GDX) have finally broken out of a 7-year base as well after recently taking out resistance at key prior highs.
Today we're going to take a deeper look at the space.
We love setups like the one in Gold Miners right now. Not only did GDX resolve higher from a massive base but there is also a hefty amount of price memory at the breakout level which should act as solid support going forward.
Jeff deGraaf is one of those analysts who influenced me very early on. Something I've always admired about him is how much emphasis he puts on first identifying what type of market environment we're in, before then giving more or less weight to different tools and indicators. This is one of those important steps that I think gets forgotten quite often when you see investors trying to always incorporate a certain strategy or approach regardless of the environment. In this episode, Jeff compares this stock market crash, and subsequent recovery, to others in the past including 1987. He does a nice job of incorporating what is currently taking place in Bonds and Gold into his analysis for stocks. I think there are a lot of great lessons in this conversation with, who I believe, is one of the best Technical Analysts in the world today.
So now that all the "FANG" stocks have reported earnings and their price performance has essentially dragged equities indexes higher over the past month, now what?
Let's take a look at what's going on in the major asset classes.
Let's start with Bonds. Here's the US 10-Year Note Futures printing their highest monthly close in history, clearly in an uptrend. The Bond market remains in an uptrend both in the US and most markets around the globe.
Every weekend we publish performance tables for a variety of different asset classes and categories along with commentary on each.
This week we're highlighting the underperformance from the US using our Global Index and International ETF tables.
Click table to enlarge view.
Despite the Wilshire 5000 (DWC) closing slightly higher on the week, all major Large-Cap averages in the US closed lower. While equities sold off across the board to end the week, the Eurozone still managed to book a nice gain with the German Dax (DAXX) and Stoxx 50 (STOXX) up 4-5% each in what was a short week for much of the region.
The Nikkei 225 (NI) and Shanghai Composite (SSEC) each closed almost 2% higher in what was also a short week for much of Asia.
Weekends are a great time to take a step back and rip through thousands of charts to see what's really going on. The S&P500, Dow and all those other indexes can only provide so much information. At a certain point, you need to get your hands dirty and a really look under the hood.
This weekend was especially informative because we got new Monthly Charts on Thursday and new Weekly Charts on Friday. That's like Christmas for me.
Today I want to go over a few of the most important charts we want to keep an eye on going into the "Sell in May and Go Away" period.
