Key Takeaway: Large-caps take the 2021 crown as mid-caps & small-caps struggle to get back in gear. US strength not being echoed among global equities. Tactical risk management model gives benefit of the doubt to bulls.
Entering 2022, Real Estate, Technology, Health Care and Consumer Staples hold down the top spots in our S&P 500 sector relative strength rankings.
Our industry group-based heat map shows deteriorating conditions across Energy and Financials and improving conditions in Staples and Utilities. Leadership from defensive groups is not usually consistent with risk-on behavior.
The All Star Charts team put a report out about the Metals sector end of last week, highlighting undercurrents investors should be keeping an eye on. Not everything is sending "all-clear" signals yet. But there is one particular name that definitely has my attention and is offering a good reward-to-risk opportunity to get involved.
I'll spare you any further preamble and we'll get right into the money quote that has me interested:
Another week, another IT trade setup that we're looking at. While there is a pickup in the market sentiment, the ideas with most conviction are coming through from IT.
We retired our "Five Bull Market Barometers" in 2020 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.
Last week, we outlined how the recent recovery in leverage in the derivative markets combined with thin end-of-year liquidity would exacerbate volatility. This same message continues to ring true.
Open interest is elevated, and the market has become susceptible to an unwind via a long/short squeeze in the coming weeks. Even a small supply-and-demand catalyst has the potential to cause a big shift given these current market conditions.
We want to dedicate this week's report to describing how we're approaching this period and defining the probabilities we're weighing with each scenario.
And it was a good one for most risk assets. Although the majority of stocks had their struggles at some point throughout the year, sector rotation continued to drive index prices higher. And it wasn't just stocks, risk assets in general had one for the record books.
The Average stock in the S&P500 was up 27.6% in 2021.
The Median S&P500 stock returned 25.2% for the year.
The market had been a mess for most of 2021. But even as the weakness persisted at the end of the year, we repeatedly highlighted the strength coming through in the IT space.
Well, this post is no different. We have breakouts, people! Let's take a look!
Below is the IT index with the important levels that we'd like to track.
Nifty IT has been sticking its head out every time we've looked for bullish momentum and strength in the market. And that strength is evident from the chart below when you look at the bottom pane of the chart. The relative strength pops right off the page. We can also see that the average drawdown has been a low 15% while most sectors have it way worse with no show of strength whatsoever.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
In recent weeks, we’ve been diving into individual commodity groups to size up the structural trend and to get a better idea of where we’re likely headed in the new year.
Last week, we highlighted energy contracts and the fact that many are still grappling with overhead supply. And earlier in the month we covered the worst-performing area of the commodity markets - precious metals.
Today, we’re going to turn our attention back to metals and review the base metals group.
Even with the S&P 500 printing record highs, trading ranges and overhead supply stole the show in 2021 and those dominant themes are evident when we look at base metals.
Notice the strong relationship between our equal-weight base metals index and blue-chip international equities in the Global Dow Index $DGT.
