Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Energy Futures Turn On The Heat
Crude Oil broke above resistance at its 2019 highs back in June and has been grinding higher ever since despite its energy-related peers remaining beneath their corresponding resistance levels. That changed this week as Heating Oil and Gasoline finally broke out to new multi-year highs. The recent strength from this group comes as base metals continue to correct through time and price. This kind of rotation within the commodities complex is constructive, especially after such a strong run-up off last year’s lows. We think Energy is offering some excellent risk/reward opportunities right now as we’re not only seeing other commodities contracts confirm the price action in Crude, but Energy stocks are also breaking out to new highs (see Chart #5).
We have been adamant about our view that we are in a rather messy environment. For this reason, we've been approaching markets with caution for months now.
Up until earlier this year when risk assets began consolidating in sideways patterns, it had been nothing but blue skies and new highs.
When the weather report is sunny, the water is calm, and the sky is clear, we know the weight of the evidence is with the bulls and we can focus our attention on finding the best opportunities in the strongest areas as ways to express our thesis.
But that's just not where we find ourselves today. The current forecast is cloudy with a chance of rain. And it's already been overcast for months!
And when the outlook is murky, as it is now, we want to take a step back and really weigh the evidence that's in front of us. We need to stay up on incoming data points and monitor how markets react with so many charts currently at key levels of interest.
In this podcast episode I sit down with Ian McMillan to talk charts and answer the question: Why Technical Analysis?
Ian makes some good points about Financial Advisors who "buy and hold", that you can often find at the golf course. He's always striving to be the opposite of that.
When it comes to the market, we dive right in to talk market internals, major trends, Gold, Energy and Bitcoin.
Ian and I have known each other for years so it's always fun to catch up and see what's on his mind. Enjoy!
This week we're looking for a long setup in the Financial Services sector. Slowly, we're seeing a resolution in trend in the names that we've been tracking. And this is one of them.
We retired our "Five Bull Market Barometers" in mid-July 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.
Large-Caps recently charged back to fresh all-time highs, but the Small- and Mid-caps are still facing some serious overhead supply.
As always, we’re snooping around our market internals chartbook to see what’s really happening underneath the surface in these areas, and whether internals agree with the price action in these smaller market-cap indexes. And even more importantly, if they support, or disagree with the new highs in Large-Caps.
We'll also answer the question: "Just how bad is the recent deterioration in breadth in some of the weaker indexes?"
We have been getting fewer new highs for a while now, but after such extreme initiation thrusts this isn’t too unordinary, and nothing to cause huge concern.
From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley
Crude Oil has been the Lone Ranger within the energy complex since early June, relentlessly pushing to new highs while other energy-related commodities have been stuck below overhead supply.
But that’s all changing this week as Heating Oil and Gasoline just broke above key resistance levels to new multi-year highs.
The recent strength from Energy also comes as Base Metals continue to cool off and correct. Copper, Tin, and Aluminum are all rangebound below logical levels of resistance after explosive moves off their 2020 lows. This is yet further evidence of the bifurcated market environment we're in right now. All we can do is focus on finding opportunities in areas that are trending... So, let's talk more about Energy.
The weight of the evidence is neutral and we’ve been discussing how it has been and remains a messy environment for stocks. We can see this in our Risk On/Risk Off Ratio which has been consolidating for several months. What caught our attention recently is how closely this ratio has moved with Emerging Markets. When looking for evidence of whether the market is poised to break out (which some indexes suggest it is), break down (which some breadth divergences suggest is a possibility), or continue to move frustratingly sideways (which seems to be a minority view at this point), we would start with this chart. If the Risk On/Risk Off Ratio and Emerging Markets are making new highs, the cyclical is probably ready to resume. If they are moving lower, a deeper correction for stocks could be in store. While they continue to move sideways, it probably remains a “less is more” kind of market.
Every so often I like to put on some delta neutral credit spreads to balance out the portfolio a bit. It's all about diversifying the books so that I'm not solely reliant on direction or volatility. We've got positions on currently that will benefit from big moves in either direction, but what if the market just grinds sideways for a bit?
This is where some delta neutral credit spreads can help out.
And my preference is to initiate these trades in liquid ETFs that are exhibiting relatively high implied volatilities.
This week I popped into Yahoo Finance to chat with their Technical Analyst Jared Bilkre.
We discussed the potential bottom in Bitcoin earlier this week. If Bitcoin is above 30,000 then a long position makes sense. But if it doesn't, I think there's probably good support at zero. Who knows how low it can go from there. But I won't be in it, so it's not my problem.
With the Nasdaq100 Equally-weighted Index flirting with a breakout near 110 and the ARKK ETF near 130, these are the critical levels we're watching.
The Dow Jones Industrial Average, Dow Jones Transportation Average, Russell2000 Small-caps and Russell Micro-cap Indexes are all below overhead supply.
Messy for longer has been the pain trade and I think European Banks could be a big tell for the next direction of markets. We're watching that $20 level on $EUFN.
