If there is one intermarket relationship that every stock market investor should be following, it's got to be the Discretionary vs Staples ratio.
Consumer Discretionary stocks represent those areas where "Consumers" spend their "Discretionary" income. These include Autos, Retailers and Homebuilders, among other things.
Consumer Staples are the stuff consumers are going to buy and use regardless of how bad the economy might get. These are things like Laundry Detergent, Toothpaste, Beer, Chips and Soda.
When Discretionary stocks are outperforming Staples, that historically happens when stocks in general are doing well and the S&P500 is moving towards the upper right of the chart.
When stocks in general are under pressure, Staples tend to outperform, holding up better than most other stocks, especially Consumer Discretionaries.
It's probably the most important correlation for US Stock Market investors to be aware of.
Here is that chart today making new 3-month highs:
From the Desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
It’s been an action-packed year for the bond market. Rates have ripped, and bonds have been in free fall worldwide. But US yields stopped going up in June.
More recently, many European benchmark rates have turned lower in dramatic fashion.
Now the question is whether US yields will roll over and follow to the downside.
Instead of getting caught up in the Fed chatter and all its implications, let’s focus on the key levels we’re using as a roadmap for treasury markets in the coming weeks and months.
Here’s a triple-pane chart of the US 30-, 10-, and five-year yields:
All three are carving out potential tops just beneath their respective 2018 highs. You can see the tops in the chart above.
And those critical 2018 highs are highlighted below:
Today, we're addressing yet another popular tool among technical analysts: market breadth. Put simply, this type of analysis lets us gauge the strength of underlying securities that compose an index or other broad group of assets.
The most common is the advance-decline line, which is used by investors to measure the number of individual stocks participating in a market trend. Using this data, analysts can get a heads-up on potential turning points in market rallies, as well as gain conviction through confirmation.
But breadth indicators can (and should) get a lot funkier.
We do a lot of market breadth analysis here at All Star Charts, primarily in the equities markets but also in foreign exchange and commodities. In crypto markets, our breadth coverage has been rather light.
The Outperformers is our newest scan that pinpoints the very best stocks in the market. It’s the fastest, easiest way to find quality names that are primed for major moves.
The goal is that as the market rally progresses, the sector rotation within the market will reflect in this scan. So while our Top/Down Analysis helps us with the broader view of the market, this Bottom/Up scan makes sure that we catch the slightest change in sentiment.
Insiders are finally buying into the summer rally. We haven’t seen this much action on our Hot List in months!
The largest insider transaction on today’s list is a Form 4 filing by the Chairman and CEO of American Assets Trust $AAT, with a roughly $1 million purchase.
As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!
One way we're doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn't just end there.
We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
Non-members can get a quick recap of the call simply by reading this post each month.
By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends.
This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.
With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.
We are still waiting for evidence that the bear market in equities has run its course, and a new bull market is being reborn. We have seen the short-term risk environment improve slightly over the last few weeks (2/5 criteria triggered), and the overall environment is beginning to lean more toward opportunity than risk. However, the burden of proof is on the bulls to show evidence of a sustainable move higher.
If tech stocks are signaling that a bottom is in, we're of the mind that we'll find some significant beta in a badly beaten household name: The recently renamed Meta $META (otherwise known as Facebook...).
Chatting with JC this morning, he was drawing a comparison of META to what Gold Miners $GDX did in 2016:
