We held our June Monthly Conference Call on 22nd 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. “If we lose these former highs and we break down, I think you’re most likely going to see Nifty 50, Nifty 500 breaking down as well.”
Click on chart to enlarge view.
The Nifty Small Cap 100 relative to Nifty 50 is one of our most telling risk-on indicators. And while the ratio itself is making new 52-week highs, those highs are coming at the back of a nasty negative divergence. This continued trend of ratio moving higher and indicator moving lower is not good for the market’s health. So a rollover here would result in a rollover in the other major Nifty indices as well.
2. “So if we start losing that 4,100, I would argue stocks, in general, are probably under pressure, including India.”
The S&P 500 is an index that one must track regardless of their geographical location or market of interest. It gives us a good indication of market health and the general sentiment. When we zoom into it, we notice that there is negative divergence here as well! While price is making new highs, the indicator is constantly moving lower. A move below 4,100 certainly does not bode well for the stock market.
3. “This is the U.S 10-year yield. This is probably the most important bond on Earth. “
This is most definitely the most important bond yield in the world The U.S. 10-yr yield chart has a positive correlation with stocks. This is to say that when one goes up, so does the other and vice versa. Here we can see that the yield is currently holding up above the level of 1.4%. But if it does break down, then that’s a big problem for the stocks. In an environment where the yields are breaking down below 1.4%, the stocks will be under pressure.
4. “This is something new. The percentage of Global Markets making new 21-day lows. So that spiked!”
The All Country World Index (ACWI) tracks the global markets and their moves. This is another one of the breadth indicators that we track. What we saw here this week was that the percentage of countries making New 21-day lows spiked. Until last week, we were witnessing an outperformance from global markets despite the US markets remaining messy. Now, this new spike changes that.
If we see an expansion of these lows in the 63-day lows (quarterly lows) as well, then that’s where the stock market will be under pressure. So that is something we’re tracking.
5. “In the short term I would keep a very close eye on the EUFN.”
EUFN is the European Bank ETF. The European indices are more financially heavy and thus, this becomes an important ETF to track. As we can see above, this ETF is holding on to its dear life at the level of 20. A move below this, and the stocks are in trouble. So in an environment where the EUFN is not powering through, the idea is to remain invested in a selected few stocks rather than the overall market.
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.
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