February Mid-Month Conference Call: 5 Key Takeaways

1. Indexes Face Overhead Supply

US indices remain under pressure as sellers have been in control all month long. As a result, the S&P 500 (SPX) continues to churn below a major horizontal resistance zone at ~4,100.

This level represents the 161.8% Fibonacci extension of the Covid-crash and coincides with some key pivot highs and lows, making it a logical level to halt the most recent advance.

Bulls want to see the S&P catch higher and break through this level of interest to confirm a new uptrend at the index level.

However, if prices remain trapped below overhead supply, we will likely see further corrective action. Over the short-term, this is the most likely scenario.

2. Europe Takes The Lead

When we look at the global indices, Europe continues to stand out with a growing list of individual countries reaching new all-time highs.

Here’s the FTSE 100 Index resolving from a half-decade base to its highest level in history.

Because European equities have little technology exposure and a heavy weight to cyclical areas, it is reasonable to see them leading to the upside.

This kind of relative strength speaks to broadening participation overseas and indicates we're in for a major leadership change that favors ex-US stocks.

3. February Follies

February is historically one of the weakest months for the S&P 500. However, this February weakness typically occurs towards the second half of the month. That means we’re in the heart of this seasonally weak period now.

Below is the average cumulative February performance of the S&P 500 since 1950.

It should be no surprise if the overall market sees further selling pressure and corrective action throughout the remainder of the month. The price trend has been following the historic seasonality very closely up until now, and with just two days to go, we don’t see that changing. 

With that said, stocks simply did what they were supposed to do during the past few weeks. There isn’t much of a signal here, and we definitely don’t want to overthink what was otherwise a constructive digestion of gains. We’re looking ahead to see what March brings.

4. The Dollar Catches a Bid

The dollar is back on the rise.

After falling for four straight months, the US dollar index $DXY has resumed its upward path as it pushes against its highest level since January.

Not only is the DXY bouncing off May pivot lows from last year, but this level coincides with prior cycle highs, making it a logical place to catch a strong bid.

Notice that momentum (measured by the 14-day RSI) never hit oversold conditions during the recent decline. This tells us that sellers never really took control of the trend.

If the bounce in DXY remains in place, it will produce stiff headwinds for global risk assets in the coming days and weeks.

5. Crude Oil Refuses to Crack

Crude oil is considered a commodity benchmark and does an excellent job of measuring inflation expectations.

After a deep correction from its peak of last year, crude oil is finding support at its prior cycle highs from 2018.

If this level holds, it will be hard to make a bearish case for commodities. It will also be hard to argue inflation is fully behind us.

Conversely, a breakdown would signal trouble for cyclical assets and the inflation trade more broadly.

As always, Premium Members can rewatch the Conference Call and view the slides here!

We hope you enjoyed our recap of this month’s call.

Thanks for reading, and please reach out to us with any questions!

Allstarcharts Team