Five Bull Market Barometers (06-12-2020)

June 13, 2020

In early May we outlined the "Five Bull Market Barometers" we're watching to identify the beginning of a new bull market in stocks.

If you haven't read our initial post linked above, we'd encourage you to check it out so you understand what the rationale behind these five indicators is.

Now that the market has pulled back from its overhead supply, let's take a look at where these long-term indicators stand.

The percentage of stocks above their 200-day moving average remains subdued. Last week's post had a data issue which we apologize for, showing the number near 6% when it was actually above 27%.

Regardless, this week we ended near 13%. One week above 15% doesn't do it for us, we need several weeks of progress above 15% to be meaningful. There's no doubt it's slowly improving, but still has work to do.

Click on chart to enlarge view.

The Large-Cap/Small-Cap stock ratio continues to sit near all-time highs, showing that risk appetite among market participants remains weak. Institutions that drive major market trends are still hiding out in the biggest companies, not venturing out into the "riskier" Small and Mid-Cap stocks.

For two weeks we've seen slight outperformance from Small-Caps, but like all of the charts in this post, we need to see continuous improvement. We also did an educational post on this type of ratio earlier this week that we'd highly encourage reading.

Nifty Bank, the largest sector of the market, continued to stabilize for the third week in a row after crashing over the last few months. As the largest sector of the market, outperformance, or at least in-line performance, is a major positive for Equities as an asset class.

Copper followed through on its breakout above 410 and is a clear sign that market participants are becoming more optimistic about global growth expectations and risk assets. Out of all five of our signals, this is the decisively bullish one.

"Safe haven" US Treasury Bonds, which serve as a benchmark for Interest Rates around the world, gave back all of last week's gains but did NOT make new lows. As we've been discussing, if the US 5-Year Yield gets above 0.55 this move could really get going...and if money is coming out of Bonds and needs a home, that's supportive for Equities. We're not there yet, but if Copper's strength continues we'd expect Rates to firm up as well. Stabilization is positive, now we just need upward progress.

In conclusion, just one of the five “Bull Market Barometers” we’re monitoring is above its key level, but all of them have been showing signs of continuous improvement over the last 3-4 weeks.

The June pullback in stocks we've called successfully may create some buying opportunities in the strongest stocks, so Premium Members can head over to our Trade Ideas page for new ideas in the Pharma sector.

Additionally, we'd recommend checking out our older trade ideas that may be back to their risk management levels. Our views are primarily longer-term, so often times market selloffs will give you a second opportunity to get involved in stocks that are still showing relative strength and have an attractive reward/risk at current levels.

We'll be posting additional analysis in the coming days leading up to our Members-Only Conference Call which will be held on Thursday, June 18th, at 7PM IST. An email invitation will be sent out in the coming days.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team