From the desk of Tom Bruni @BruniCharting
Thank you to everyone who responded to this week’s mystery chart.
There were a lot of people on the right track in guessing what it was…but nobody got it exactly, which serves you right for guessing.
In any case, most of you are taking a neutral or bullish approach to the chart and agreed that a potential trend reversal is in the works.
Let’s take a look.
Here’s the ratio of Micro-Caps vs. the S&P 1500 attempting a breakout from a multi-year downtrend line. For us, the fact that prices were unable to make it to their downside price objective and momentum has been diverging positively for most of 2019 signals to us that sellers are losing control and that a bearish to bullish trend reversal is likely in progress.
Click on chart to enlarge view.
This ratio looks similar to many of the other risk barometers we’ve been watching for a turn in like High Beta vs Low Volatility stocks, Australian Dollar/Yen, and others. The first step in their transition from a downtrend is to stop going down…so we’ve got that. Now we need to see if prices can make a higher high and momentum can get overbought.
We’re not there yet, but the recent improvements are a positive sign for US stocks and risk appetite in general.
Let’s see if bulls can build on this progress as we head into the new year.
Thanks for reading and please let us know if you have any questions!