Five Bull Market Barometers (06-19-2020)

June 21, 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, let's see where we stand after another strong week in the market.

We ended this week at 20.80%. Now that this indicator has thrust above 15% we can declare it bullish, with this thesis being invalidated after two weeks of consecutive closes below the 15% threshold.

Click on chart to enlarge view.

While we had been using the Nifty 100/Nifty Small-Cap 100 ratio as our gauge of Large/Small-Cap performance, we're going to swap it out for the Nifty 50/Nifty Small-Cap 100 ratio moving forward. We've written two extensive pieces on this ratio (Article #1 and Article #2) and feel that it is a better representation of risk appetite.

And more importantly, it gives us a clear level to judge it as bullish or bearish. If prices of this ratio are below 2.30, then the failed breakout is intact and we can expect Small-Caps to continue outperforming.

Nifty Bank, the largest sector of the market, continued to stabilize for the fourth week in a row after crashing from late February to early May. As the largest sector of the market, outperformance, or at least in-line performance, is a major positive for Equities as an asset class.

Since prices have stabilized, we can put this ratio in the bullish category as long as it stays above long-term support/resistance near 1.91. Above that, we're in good shape.

Copper has stayed well above our level of 410 for several weeks, which is a clear sign that market participants are becoming more optimistic about global growth expectations and risk assets like Equities.

"Safe haven" US Treasury Bonds, which serve as a benchmark for Interest Rates around the world, have yet to make any upside progress but are also NOT making 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, four of the five “Bull Market Barometers” we’re monitoring are now above their key levels after showing several weeks of continuous improvement.

Given that the weight of the evidence continues to shift toward a bullish longer-term outlook, another major theme we're looking to capitalize on is the resurgence in Small/Mid-Cap stock relative performance.

Premium Members can view Thursday's Conference Call Recording for a review of all trends that matter across the Equity, Commodity, Currency, and Fixed Income markets.

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

Allstarcharts Team