We retired our "Five Bull Market Barometers" in mid-July last year 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.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Overhead supply is a theme we're seeing all over these days. And this isn't just true for the stock market, but it's also dominating the commodity landscape.
Crude Oil reached our objective of 76 and turned lower. Copper remains stuck below its former 2011 highs. And Gold has been an absolute mess since peaking last August.
Even the few commodities that have recently broken above resistance zones -- such as Gasoline and Heating Oil -- have yet to follow through and confirm their new highs in any meaningful way.
Remember, commodities have enjoyed some explosive moves over the past year. Now, many are at logical levels to pause and digest recent gains. This is healthy stuff. Normal market behavior.
With the current market environment giving us many mixed messages, what better time to dive in and see what's happening underneath the surface?
Stocks (International & U.S.)
U.S. Sectors & Industries
Market Breadth & Sentiment
Commodities
Currencies
Intermarket Analysis
Crypto Currencies
New Trade Ideas
Overall Strategy
We've also made it really easy to navigate through this 242 page report by organizing the tabs for you. So be sure to open the PDF and use these tools to make your life easier.
Our apologies for the late delivery as we've all been so buried in charts preparing our Q3 Playbook that we forgot about this week's column!
As many of you know, something we’ve been working on internally is using various 'bottoms-up' tools and scans to complement our top-down approach.
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 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.
I might be old school, but I like to look within the Financials sector for leadership trends that provide some clues for the path of the market overall. Specifically, I keep an eye on what Banks and Broker/Dealers are doing on an absolute basis but also relative to the S&P 500. The XBD bottomed versus the S&P 500 early last year and led the rally into Q1 2021. The BKX began leading a bit later, but its relative strength carried further into this year. Both now have rolled over and are moving lower versus the S&P 500. As we have shown recently, the XBD/SPX ratio tends to move with our risk on/risk off ratio and so a breakdown in the Broker/Dealer index may be a warning signal about the overall risk backdrop.
That’s what an excited neighbor told us after randomly knocking on our front door earlier this week.
We followed her out to our yard by the sidewalk to find a trio of scientists readying to catch and study a pair of Cooper's Hawks that have been nesting in a tree across the street. They constructed a trap with a net stretched between a couple of poles and a distress call playing over a loudspeaker.
First, the female swooped in, followed by the male. The hawks were quickly entangled in the net and the scientists began to band and measure them.
In an asset class where 80% drawdowns are a regular occurrence, it goes without saying you need to manage your damn risk.
By simply identifying a level where you get out of the trade, you are at a substantial competitive advantage, in this asset class more than any other.
There should be no shame in flipping your approach as new data comes in. At our shop, we pride ourselves on it.
But to the crypto junkies and laser eyes crowd, that'll get you called a "FUD'ster" or "paper hands".
Don't listen to these people.
They're truly worse than the gold bugs and permabears. They don't deserve your attention.
With any market, not just crypto, our primary goal is to make money. And to do that, in more cases than not, we have to play defense. It's what we're doing in stocks right now - it's just a regular part of putting money to work.
