[Premium] Three Charts For The Week Ahead

JC Parets
November 22, 2022

We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.

This is that post, so let's jump into this week's edition.

Last week we focused on $ACWI, All India Marketcap, and BankNifty

Let's move into this week's topics. We have big, important moves to track this week.

1. The first chart we're looking at is the performance of the U.S. Dollar Index $DXY relative to the Emerging Market currencies index $CEW.
If you ask what it will take to spark a sustained rally in equities, it'll be U.S. Dollar. It's hard to find a stronger negative correlation with global equities over the past half-decade or so. Notice how whenever the Dollar goes down, S&P 500 absolutely love it.
Could this be an epic failed breakout in the U.S. Dollar, leading to another epic collapse in prices? If so, just think about how well stocks will do in that environment.
Well, if the Dollar really sells off, you better be positioned for it. And since we know the catalyst, we know what to focus on.
We've said it a thousand times: "Investors will have a hard time making long stocks if the Dollar remains strong".
We've seen just a little bit of Dollar weakness, and look how well stocks have done. What if we get real Dollar weakness? The stage is certainly set. So what's the best way to profit from a weaker Dollar? Positioned in Equities within outperforming sectors will do the job.

Click on the chart to zoom in.

2. The second chart we're looking at is All India Market Capitalisation, which covers about 5,200+ BSE listed companies, and the market capitalisation of the Top 10 companies in the top pane and Nifty 500 in the bottom window.
The Market Capitalisation data shows that the rally in stocks had been on the back of the top 10 market cap stocks, while the All India Market Capitalisation has been diverging from the October highs. This divergence indicates a short-term bearish bias for the broader market if the price continues to sustain below 15,650. The nifty 500 has been facing resistance at 15,650 for the past five times. Let's see if it's different this time.

3. The third chart we're looking at is the Nifty Consumption Index. It covers the domestic consumption sector, which includes sectors like Consumer Non-durables, Healthcare, Auto, Telecom, Services, Pharmaceuticals, Hotels, Media & Entertainment, etc. Currently, it's retesting the base breakout level from 2021 highs. Sustenance above this base would ensure supply would get absorbed and this sector continues to outperform.

In our view, these charts will help set the tone for this week and provide information on how we should approach the market in the coming weeks.

Also, check out our other weekly post, "Trade Of The Week."

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

Allstarcharts Team

Filed Under: