Chris Ciovacco is someone whose work I've followed for many years. His approach to markets is similar to mine, in that he incorporates a weight-of-the-evidence technical strategy. His open-mindedness and ability to set up multiple outcomes to prepare for, is one to be admired. In this episode, Chris walks through his thought process when analyzing the current environment. He makes a great comparison to early 2009 and asks whether we're in January '09, just before another severe decline in stocks, or in May, on the way up after already bottoming.
For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!
We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.
You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?
Every weekend we publish performance tables for a variety of different asset classes and categories along with commentary on each.
This week we want to highlight the continued divergence between Energy stocks and Oil using our Sector and Industry ETF and Commodity tables.
First, let's look at some of the longer-term leaders. Biotechs (IBB) just broke out to fresh multi-year highs and are one of the top performers on our Industry ETF list across all timeframes.
Aside from Gold Miners (GDX), they are the only industry on our expanded list of over 50 ETFs already back at fresh 52-week highs. Definitely some relative strength worth paying attention to in these areas.
When analyzing the Gold Mining Sector, I can't help but think about the 1993 movie Dazed & Confused. One of the more popular lines in the film is the perfect way to explain what is currently happening in today's market.
In this scene Matthew McConaughey's character is telling a couple of kids,
You heard about the party being busted right? Not to worry. There is a new fiesta in the making as we speak. It's at the moon tower. Full kegs. Everybody's gonna be there. You oughta go...."
We have been writing a lot about risk-appetite lately as we're constantly trying to gauge the "animal spirits" at work in the markets. Right now we're seeing a lack of participation from risk-assets such as Small-Caps, Commodities, and the more cyclical sectors as well as a risk-off theme in many of our intermarket ratios.
We've covered the US plenty already, so this post will focus on what we're seeing from risk-assets in Equity Markets abroad.
This week's Mystery Chart was an inverted chart of the Frontier Markets ETF (FM). Thanks to everyone for participating. You were pretty much ALL buyers this week, which means you were actually selling Frontier Markets against their prior all-time lows.
Yesterday I wrote a post about deteriorating market internals. I discussed breadth divergences as well as the lack of confirmation of the S&P 500's recent highs from many important sectors and indexes.
In this post, we're going to focus specifically on the Large-Cap Sector SPDRs that failed to make higher highs and are showing early signs of cracking. To no surprise, these are some of the most cyclical areas of the market including Industrials (XLI), Financials (XLF), Materials (XLB), and Energy (XLE).
This speaks to the lack of risk-appetite we continue to see not only within equities but across all asset classes right now.
You can see the first three sectors in the chart below. With Crude Oil futures crashing below zero this week, we think it's prudent to stay away from the Energy sector until the smoke clears.
We don’t need to dig too far into the internals to know breadth has been deteriorating since last week even as the S&P 500 was making new incremental highs. Most large-cap sectors failed to make new highs with the S&P as well as many other major indexes, including small-caps, mid-caps, and Transports.
We’ll talk about this more below. First, here is a new breadth indicator we’re looking at using the Anchored Volume Weighted Average Price (AVWAP).
Post #2 of 2 focuses on the absolute trends and stocks we want to be buying and selling.
In our first post, we talked about relative performance in Financials rolling over aggressively. On an absolute basis, the TSX Capped Financials Index is stuck below its December 2018 lows and 2015 highs, much like US Small-Caps, the German DAX, Euro Stoxx 50, and many of the other weakest markets out there. As long as prices are below 263, the bias is to the downside with a target near 210.
Post #2 of 2 focuses on the absolute trends and stocks we want to be buying and selling.
First, let's start with the TSX Capped Financials which represent 33% of the TSX Composite. This chart has spent the last four years putting in a major top and the underperformance looks likely to continue. From that perspective, can the TSX Composite continue to work sustainably higher if its best players are underperforming so drastically? I'd argue no.
