Yesterday during our Members-Only Conference Call we discussed a lot of themes and trade ideas, but I wanted to highlight two charts that remain an issue for our bullish Equities thesis.
The first is IT. If we look at the Equally-Weighted vs. Cap-Weighted IT Index, we see a clear downtrend from the last year and little signs of a bottom emerging in price or momentum. This means that fewer stocks are participating to the upside, making it difficult for the sector index as a whole to move higher.
Click on chart to enlarge view.
The same can be said for Fast Moving Consumer Goods, which is sitting near multi-year lows. A positive is that momentum hasn’t gotten oversold after diverging at the 2018 lows, but price hasn’t been able to gain any upside momentum yet. Fewer stocks participating in one of the largest sectors in the Nifty 500 is not what we want to be seeing.
We’ve seen breadth improvements in both Financials, Energy, and several smaller sectors improve significantly over the last few months.
With that said, IT and Consumer Goods have significant pull on the broader market due to their size, so as stock market bulls we want to see these two start to participate. All of them, not just the largest names in those sectors.
They’re not like Energy where due to its construction Reliance Industries can almost solely dictate the direction of the sector index, it’s more diversified and therefore more stocks need to move higher if the sector is going to stage a sustainable rally.
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Thanks for reading and let us know if you have any questions!