From the desk of Tom Bruni @BruniCharting

Over the last two months we've been pointing to many divergences in breadth and momentum, as well as intermarket relationships that add to the mixed near-term signals we continue to see around the globe.

Last week I compared the current environment in US Stocks to that of India's a month ago saying the stage was set, but that all these divergences needed price confirmation before they become actionable.

Yesterday we got new Monthly Candlesticks, so this post will outline a few of the major changes since last month.

From the desk of Tom Bruni @BruniCharting

Canada, like a few other Major Indexes from around the globe, continues to churn around all-time highs. So which way will it resolve?

Let's go sector by sector and see what the weight of the evidence suggests, just like JC did for US Stocks.

First, let's start with the TSX Composite, which continues to hover near its 2018 highs as momentum diverges. After a ~20% rally off the December lows and the presence of a flat 200-day, it would be healthy to see some consolidation at current levels before breaking out

Click on chart to enlarge view.

If we do break out without that pause first, I feel it'll have a lower probability of succeeding. Although our risk will be extremely well-defined if above 15,580, it's clear that...

Sayings like these give journalists topics to write about. Pro tip: Most of the stuff you'll read is garbage.

“Sell in May and go away, and come back on St. Leger’s Day”

That's where all this Sell in May stuff came from in the first place. The inference here is that there is no point trading in the summer. All the brokers and fund managers will be out in the Hamptons working on their tans. The original saying suggests that the big boys won’t get back to business until Horse Racing season in England is over in the Fall. The British have been celebrating this day in September since the St. Leger Stakes, last leg of the English Triple Crown, was established in 1776. We Americans like to call this time of year, “Football Season”.

The reason we still look at this today is because through 2016, all of the gains in the Dow Jones Industrial Average since 1950 had come between the months of November and April. In other words, had you bought the Dow every May 1st and sold on Halloween every year since 1950, you would have actually had a negative return. The past 2 years have turned this number slightly positive but I think you get...

It's that time of the month again. This is when we take a step back, reevaluate everything we just saw the past 4 weeks or so, and come back home to the longer-term charts. Life is easier when we're not fighting big trends. While it's important for us to try and identify price levels that could act as support and resistance, this exercise is to determine whether these assets are going up, down or sideways.

Regardless of our time horizon, I think it's important to take these 30-60 minutes a month to acknowledge the bigger trends. Once this is done, then we can work our way down to weekly and daily charts for execution purposes. I say it all the time - My Monthly Candlestick Review is the most valuable 6-10 hours of work I put in each year.

You can see the updated monthly charts for yourself here

This is what stood out this month:

In our most recent All Star Options monthly conference call, JC highlighted why he felt metals might be a good buy here. Inspired by his enthusiasm, we discussed a play in gold that could play nicely in the scenario he laid out.

From the desk of Tom Bruni @BruniCharting

Last week in our note to Institutional Clients we highlighted the potential for mean-reversion in the relative performance of Small and Micro-Caps, driven by rotation into Financials and Healthcare.

Below is a chart of the Micro-Cap Index (IWC) relative to the S&P 1500, confirming a failed breakdown and bullish momentum divergence. As long as prices are above 0.1405, this ratio looks ripe for some mean-reversion to the upside.

Click on chart to enlarge view.

Same goes for the Russell 2000 relative to the S&P 500, failing to hold its new marginal low as momentum diverges.

Here's the Russell 2000 breaking out of a 2 month long base on an absolute basis as well. For the first time in a while,...

From the desk of Tom Bruni @BruniCharting

With another potential failed breakout in the US Dollar setting up, here's the metals trade we're putting on.

This is the video recording of the May 2019 Conference Call for Members of All Star Options

With U.S. Markets back at All Time Highs, it would be irresponsible to be doing anything other than keeping close tabs on the price action leaders. And many of these leading stocks will currently be found in the Software sector.

Excuse my play on words in the title, but I wanted to make the point that at 13% of the Nifty 500, the Fast Moving Consumer Goods Index is a big part of the bull case for Indian stocks.

We've talked about weak participation in this sector and since then it's deteriorated further as opposed to getting better.

From the desk of Tom Bruni @BruniCharting

While we wait to see whether or not this retest of all-time highs is a successful one, we want to define our risk on the long side in individual names that continue to lead the market higher.

One subsector that remains a consistent source of these setups is Software.

Below is a chart of Software relative to the Technology Sector overall, finding support right where it needed to at our previous price target. Whether prices can get back to their year-to-date highs will be an important tell, but for now the uptrend in this ratio remains strongly intact.

Click on chart to enlarge view.

One individual name that looks compelling at current levels is Coupa Software, which is breaking out of a 10-week base to new all-time highs. The stock could use a few days of consolidation before continuing higher, but from a risk management perspective we'd be buying a breakout above 103.25 and targeting 130.50 on the upside over the next 1-3 months.

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