Last night we held our September Monthly Conference Call which our Premium Members can access and rewatch here.
In this post, we’ll share five of the most important charts along with JC’s commentary of them and a brief explanation for each.
1. “Any rally through 17.75 would be bearish for the Dollar and good for Equities and risk assets…”
Click on chart to enlarge view.
We’ve been watching this consolidation in Emerging Market Currencies very closely as they attempt to break above former support at 17.75. This is a risk appetite measure for us, which we explained in detail last Friday for our subscribers. Here’s a quick quote from that full post which we suggest reading in its entirety.
Think about it, these currencies themselves are a risk asset. If the world is going to shit, are investors leaving their money in the Brazilian Real or Argentinian Peso? Or are they buying US Dollars?
They’re buying US Dollars and that’s why we’re paying attention to this potential inflection point. As a risk appetite barometer.
2. “This chart continues to suggest there’s risk appetite in the stock market, people are buying Small-Cap stocks.”
We’ve spoken extensively about the Nifty 50/Nifty Small-Cap 100 ratio and its importance as a risk appetite measure…and it continues to fall. Small-Cap outperformance is a sign of risk appetite among investors, so seeing this ratio push to new lows is indicative is just another data point that reiterates we are in a bull market.
3. “If you want to make the conservative…and eventually bearish case for stocks, it starts with the flat 200-day moving average. There’s no trend right now, so we need to see how it resolves and we think it ultimately resolves to the upside.“
A flat 200-day moving average is simply an indication of the fact that the Nifty 500 has gone nowhere since late 2017. We are at the exact same levels. In other words, there has been no trend over this period.
Transitions from sideways ranges typically take longer than expected, so while we think an upside resolution is the most likely outcome, we just want to level expectations that it’s unlikely to happen on this first attempt.
Patience is key and a relentless focus on owning the strongest stocks in the strongest areas of the market continues to serve us well, whether the major Nifty Indices are trending or not.
4. “We want to be buying smiley faces, not frowny faces…and this is one big smile. We’re looking for further outperformance from the IT sector.”
Speaking of areas of strength, the Nifty IT Index is approaching new all-time highs relative to the broader market. After twelve years of no progress, the IT sector is just now starting to outperform and we think it has a ton of room to run. We’ve written all about its breakout and the strength in TCS here if you want to read more.
5. “From a weight of the evidence perspective are we seeing more big bases resolving higher? Or are we seeing more major topping patterns resolving lower? We’ve done the work and it remains the former.”
And lastly, we’re looking at a massive base in a leading stock resolving to the upside. The point here is two-fold.
We’re seeing many stocks like this, which is indicative of the type of environment we’re in. Stocks are in a bull market, which means more stocks are going up and resolving higher than going down or resolving lower.
And the second point we want to make here is that a lot stocks int he Pharma sector are retesting important breakout levels. If you missed the initial moves, the recent weakness has presented an opportunity to get back involved in a lot of these names with well-defined risk.
Take a look for yourself and you’ll see what we mean.
We hope this gave you some perspective on the topics we’re focused on in the current environment. There are clear trends across various asset classes that we want to continue taking advantage of.30-day risk-free trial. Or sign up for our “Free Chart of the Week” to receive more free research like this.