From the desk of Steve Strazza @Sstrazza
Monday night we held our March Monthly Conference Call, which Premium Members can access and rewatch here.
In this post, we’ll do our best to summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each
Let’s get right into it!
1. Gold Hits Fresh 52-week High
Precious Metals are back on track with Gold leading the way.
Gold bugs closed out last week with another strong showing, absorbing overhead supply at a critical level – the former 2011 highs.
Those former highs mark the peak of the last secular bull run in Gold, and last week’s breakout signifies a significant uptick in demand for the shiny yellow rock.
It’s impossible to ignore the impressive upside follow-through across the precious metals space.
Gold is breaking out to new all-time highs in currencies all around the world. Silver is trading back in the box, implying increased risk appetite. And Gold priced in USD is closing in on fresh all-time highs of its own.
Based on this mounting evidence, it’s time to get long precious metals and their related stocks as the next secular bull market in Gold takes shape.
2. Bonds, Bitcoin, and Big Tech
We can point to plenty of areas that have not been working recently and paint a bearish picture for the broader market. However, it is just as important to consider the areas that have been working.
Here is a triple pane chart with three of them. Just look at these basing patterns in long-term treasury bonds (TLT), bitcoin (BTC), and big-cap tech stocks (XLK):
All three of these areas have been working on constructive rounding bottom reversal patterns since last year. While BTC already resolved higher last week, bonds and tech look ready to do the same any day now.
If you’re wondering why they all look so similar or why they have all performed so well in recent weeks, we think it has everything to do with interest rates. As these are all long-duration assets to varying degrees, they are influenced by movements in rates. With rates collapsing recently, they have all caught a strong bid.
3. Investors Look to Growth
The recent volatility has not just brought about big price swings on an absolute basis, we’re also seeing wild action in the relative trends we track.
Here is the large-cap growth vs value ratio, which just registered its second-largest weekly gain in history. We’d have to go all the way back to the dot-com bubble and crash in 2001 for a week where growth outperformed value more than it did last week.
In this ratio, we are using the Russell 1000 Growth ETF (IWF) as the numerator and the Russell 1000 Value ETF (IWD) as the denominator. This gives us a more comprehensive view of the growth vs value dynamic than we would get using the S&P indexes.
We want to pay close attention to extreme readings such as this in the rate of change as they are evidence of momentum thrusts. Momentum thrusts tend to occur at turning points and can signal either exhaustion of an old trend, or the initiation of a new one. Considering the ratio fell steadily throughout 2022, it is unlikely this is exhaustion. We think a new relative regime that favors growth stocks could be underway.
4. Testing the Financial Crisis Highs
Volatility has grasped the financial sector since late last week as weakness from regional bank stocks spills over to other groups. The most prudent course of action is to remain on the sidelines and let the dust settle.
With that said, when it comes to Large Cap Financials (XLF), we couldn’t have a better signpost to help guide us in determining the next move for these vulnerable stocks.
The pre-financial crisis highs around 30 is our line in the sand for XLF and the financial sector at large. In fact, we’ve been paying close attention to this level for a while now as it was tested twice last year. The Bulls successfully defended it both times. Whether or not they can do it a third time remains to be seen.
As long as XLF is above its pre-financial crisis highs, we’re confident that weakness from financials won’t be setting off a broad market selloff. However, if we violate this level, it will represent serious structural damage. Under this scenario, we’ll be looking for further downside from financials, and likely the entire market.
5. New Lows for Crude Oil
The weakness in Financials has got all of the attention of late, but energy has also been hit by selling pressure.
As you can see in the chart below, Crude Oil broke below the 2018 high of around 75, closing at its lowest level in 15 months.
This level not only represents key prior cycle highs but the AVWAP from 2020 lows, making it a critical level of interest.
In addition, the 200-day moving average is sloping down for the first time in almost two years, confirming a change in trend.
As long as we’re below the 2018 highs, the risk is to the downside for Crude Oil. Energy stocks are likely to continue lower under this scenario.
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!