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.
Our top-down macro approach keeps us in tune with the markets. It’s the backbone of everything we do here at All Star Charts.
We’ve strived to stay true to our time-tested analysis by complimenting our top-down approach with several bottom-up scans we've implemented over the past 12 months. From Under the Hood and 2 to 100 Club to the Young Aristocrats and Minor Leaguers, we’re always aiming to give you the tools you need to succeed in any market conditions.
Click here to watch a brief video of JC explaining our most popular scans!
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.
The recent uptick in US Treasury yields has not been confirmed by other areas of the bond market (specifically Bunds & JGBs). Bonds at this point are extremely oversold and sentiment indicators are pointing to excessive pessimism. The caveat is that bonds are in a bear market and so this sort of behavior should not come as a surprise. Still, there may be some room for yields to consolidate or even pullback from here. If that happens, it could provide a chance for gold to gain some traction. Gold & bonds have moved similarly in recent years, though gold has started to firm up even as bonds sold off this week. What sort of retracement of their recent weakness either bonds or gold can achieve remains to be seen - but an opportunity for that may be emerging.
Earlier this week JC referenced the 1966 Western “The Good, the Bad, and the Ugly”. Labelled a “Spaghetti Western” because it was directed by Italian director Sergio Leone, the movie and the genre overall have become cultural icons. Little did JC know that I had just watched this movie with my son within the past week (much the way that I had watched it with my father when I was growing up). Beyond just seeing the market metaphor in the movie’s title, the reference had the movie’s theme music again ringing in my ears.
It’s been a volatile week from a sector level performance perspective, but this is still how I am looking at the market:
US Stocks have been a bit dicey since yesterday afternoon as we're seeing a lot of high beta names get chopped down. This is never fun if you've been riding trends.
But when markets get turbulent, the strongest stocks and future leaders tend to reveal themselves. And that's what I'm seeing right now in a popular name.
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.
How Dangerous Are These Divergences?
Let’s play a little devil’s advocate. Do you know what a common characteristic of market tops is? Failed breakouts. We see them everywhere at significant peaks - just look back to February of last year, there were plenty of textbook examples. The Russell 2000 just printed a failed breakout and confirmed a bearish momentum divergence as price sliced below its February highs. Making matters worse, RSI couldn’t even register an overbought reading with the most recent highs.
Two things we've been pointing to this week are the potential failed breakouts in Small-caps and Micro-cap stocks, which would confirm a series of bearish momentum divergences. And also the relative strength out of Consumer Staples throughout March, which is something we haven't seen in a long long time....
Remember, Consumer Staples outperforming is consistent with a market environment where stocks are under pressure.
Here's that chart showing Staples potentially confirming a rare "Diamond" reversal pattern relative to the S&P500:
