Intermarket Day is one of my favorite days. Yes I'm a huge nerd. Deal with it!
This is when I go through many markets relative to each other. These markets include individual U.S. Sectors compared with the overall U.S. Stock market. We also look at other assets against each other like Bonds, Commodities and Currencies. We price Gold in other currencies, and change around denominators for both trade idea generation and also for informational purposes.
Here are some of the things that stood out from this week's homework:
Today is the 7th anniversary of the S&P500 closing low in March 2009. This date, March 9th, has gone down as the historic low in the stock market after the financial crisis of 2008. But the truth is that the market of stocks bottomed out well before that. Let's remember that the S&P500 is just 1 index with only 500 stocks. The majority of stocks had already bottomed by the time the S&P500 ultimately made its low towards the end of the 1st quarter of 2009.
During broad rallies in the equity markets, both in the US and globally, I look for those names / sectors / indices that are not participating to the upside, as those are normally the ones that lead to the downside once the market moves lower. One of the names that caught my eye during the rally off the February lows is Pfizer.
Before getting into the analysis of Pfizer, I think it's important to point out the weak relative performance of the sector it belongs to.
The roughly 5 year daily chart of the ratio XLV / SPY shows the under-performance that's been occurring in Healthcare stocks relative to the S&P 500 since mid-2015. Recently this ratio broke down below its primary uptrend line from the 2012 lows while momentum remains in a bearish range, suggesting that this under-performance is likely to continue.
Sometimes I share with you guys what I think is a really interesting chart and/or trade and call it the "Chart of the Week". Other times I'll put together a study to try and confirm or invalidate a prior thesis of mine and I'll title that the "Spreadsheet of the Week". Today, however, I think I have what could very possibly be the Chart Of The Year!
In early January I was pretty vocal about fading the rally in Natural Gas futures, but with my downside targets met last week, I think this market is setting up for another sharp rally to the upside.
Before getting into my price analysis, it's important to point out that Natural Gas just entered what is seasonally the best 3 month period of the year while public pessimism sits at multi-year highs. The combination of these conditions could provide prices with a serious tailwind if they begin to gain momentum to the upside.
Last week a structural breakout in AUD/USD was confirmed. Whether you trade currencies or not, it's worth paying attention to because of its implications from an inter-market perspective.
From a structural point of view, the Australian Dollar has been in a downtrend since 2012, with the selling really accelerating in late 2014. Recently this pair met its downside target at support near 0.68-0.69 and began consolidating as momentum diverged positively. Last week, prices broke above the downtrend line from the November 2014 highs to confirm the bullish divergence and breakout. This development suggests that as long as prices remain above the downtrend line, this market is likely headed toward prior support near 0.8075-0.81.
There are a lot of interesting things going on in the Crude Oil market these days from both a long-term and a short-term perspective. Premium Members of Allstarcharts have wanted to be long Crude Oil since mid-February when prices were able to get back above that key $29.60 level. Our short-term upside target was near $38 and this target is being hit this week. Nice little 30% rally. But moving forward, the implications of this short-term move now change the supply and demand dynamics in Crude Oil bigger picture.
Every month we host a conference call for All Star Charts Members where we discuss ongoing themes throughout the global marketplace as well as changes in trends where new positions would be most appropriate. This includes U.S. Stocks & Sectors, International Stock Indexes, Commodities, Currencies and Interest Rate Markets.
This month’s Conference Call will be held on Wednesday March 9, 2016 at 7PM ET
In this month's premium members conference call, we will discuss the following topics:
- How much more upside is left in this global stock market rally?
- Should we expect the U.S. to continue to underperform vs. Emerging Markets?
- How Much Higher Can Crude Oil Go From Here?
- The longer-term dynamics in Gold Miners have changed. How do we profit?
- Apple has bottomed - How high can it go?
- Why We Are Finally Getting That sector rotation into Biotechnology?
As always, we'll leave as much time for Q&A as possible. Looking forward to seeing you on the call!
Crude Oil confirmed a failed breakdown below the 2009 lows last week. This development is extremely important from a risk management standpoint and has big implications from an inter-market perspective.
This market has been in a structural downtrend since late 2014 when prices broke down out of a five year long symmetrical triangle. The resolution out of this pattern was explosive, with prices declining roughly 75% off of the 2014 highs in less than two years. During this decline there has been no reason to be long this market for anything more than a tactical bounce, but with last week's close above the 2009 lows it is finally feasible for those with a longer-term time horizon to approach this market from the long side.
If you're a market participant, Lumber should be on your radar. The weight of evidence suggests that this market has upside roughly 20% upside from current levels and offers a trade opportunity not correlated to US equities.
Lumber has been in a structural downtrend since breaking down from a symmetrical triangle in early 2015. The decline continued throughout the year, with prices putting in a failed breakdown and bullish momentum divergence at long-term support near 215. After confirming the failed breakdown by closing back above the May 2015 lows, prices consolidated for 5 months and have now broken out above a multi-year downtrend line.
