From the desk of Steve Strazza @Sstrazza

New Mystery Chart!

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?

This is an intermarket world that we live in. If you think what happens in the commodities and bond market isn't directly tied with what's also happening in the stock market, you've got a lot of homework to do.

You guys who have been following around along time know that we start out every single conversation about the stock market with, "Okay, what are bonds and commodities doing". It starts there. And then we go into the asset in question.

Look at Crude Oil still crashing down to new multi-decade lows:

Most of what you'll hear me talk about are things I've learned from other people. In some cases, they were predecessors of mine and in other cases they're buddies and colleagues. It's funny because I try to do a good job of giving credit when I can, where I remember specifically who I learned something from. You guys who have been following me for a long time know that about me. But the truth is that sometimes I simply forget where I learned it. It's just part of my arsenal and I always assumed it was there.

From the desk of Steve Strazza @Sstrazza

Every weekend we publish performance tables for a variety of different asset classes and categories along with commentary on each.

As this is something we do internally on a daily basis, we believe sharing it with clients will add value and help them better understand our top-down approach. We use these tables to provide insight into both relative strength and market internals.

This week we want to highlight our US Equity Index and Industry tables as they illustrate an important resumption in leadership from the market's most resilient areas.

Click on table to enlarge view.

The joke around our virtual office this morning was that the nasdaq is not just strong as an index, the stock itself really stands out!

The exchanges and "marketplaces" are really shining. The relative strength compared to many other sectors and industry groups is off the charts (see what I did there?)

Take a look at names like CME Group, Market Access and Tradeweb. These names keep popping up on our relative strength scans, especially compared to other types of "financials". But let's be serious, these are tech stocks.

This is the chart of the Nasdaq that has our attention:

From the desk of Steve Strazza @Sstrazza

Thanks to everyone for participating in this week’s Mystery Chart. The responses were pretty mixed with most wanting to do nothing for now and wait for a retest of the recent highs or lows before taking action.

While it's hard not to like this uptrend over the long-term, doing nothing in the near-term is more or less the camp we're in as well.

With that as our backdrop let's discuss why this chart is important and on our radar right now.

This is a daily line chart of the All Star Charts Custom MAGA Index, which is an equally weighted index of the four largest stocks in the US Equity Market, measured by market capitalization.

From the desk of Steve Strazza @Sstrazza

Today, we put out a post outlining why we are bearish on Small-Cap stocks and want to be shorting the Russell 2000 ETF (IWM). Read it here as it sets the stage for this post.

Small-caps are the weakest area of US Equities. That's why we are expressing our bearish view on stocks via the Russell 2000 as opposed to one of the large-cap indexes, all of which the Russell has severely underperformed for several years now.

In line with our top-down approach, we don't just want to short an index. We are believers that playing the averages results in average returns.

For this reason, we've drilled into the Russell 2000, looked at every single chart and picked out the weakest names we could find with clearly defined risk management levels to limit us to the smallest of losses in the case these names mean-revert higher.

Adam Koos is a portfolio manager who uses Technical Analysis to make decisions for the clients he advises. In times like these, Financial Advisors all over the world are getting asked the hard questions. In this episode, Adam talks about how Technical Analysis has helped both his decision making and the communication with the families he works for. It's really cool to see these tools helping advisors everywhere, and especially a friend who I speak to regularly about markets and other common interests, like sports and wine.

From the desk of Steve Strazza @Sstrazza

In January and February, we cautioned that we wanted to be selling stocks, raising cash and buying bonds due to bearish divergences and deteriorating market internals. At the same time, many major indexes and sectors had achieved our upside objectives and were at logical levels of potential resistance.

The Global Equity Market collapsed and the S&P 500 fell 35% soon after, blowing a hole in the long-term uptrend in most major indexes around the world.

In late March we wrote about bullish breadth divergences and the key levels of interest that made us want to err on the long-side over the near-term.

That ended up being the tradeable low we were looking for as stocks gained 30% and retraced more than half of their recent drawdown in just 15 days.

On our monthly conference call this week, we talked a lot about key levels in the most important asset classes in the world.

As promised, here's a run down of the 20 items on our checklist. I promise you the world is not ending if there are an overwhelming amount of yeses on this list.

Let's use this as a risk management gauge. I think this will help us answer the question of, How defensive should we be?

We made a spreadsheet internally for this and we'll send you regular updates and keep discussing this list as new data comes in.

From the desk of Steve Strazza @Sstrazza

We are always looking at intermarket signals and ratio charts for insight into various asset classes. We've recently written plenty about intermarket relationships that signal risk-appetite, or lack thereof, for stocks as well as others to get a read on yields.

Today's Chart of the Day, High Yield Bonds (HYG) vs Short-Term Treasuries (IEI), is one of our favorite risk-appetite ratios.

Credit Market investors favor High Yield Bonds over Treasury Bonds during the "good times" - periods of strong economic growth, rising rates, etc. On the other hand, we know treasuries are a safe-have asset and outperform in environments where investors are uncertain and want a place to park their capital until the smoke clears.

Say what you will about stock market action since the equities bottom was put in on March 23rd, but either way you can't not be impressed.

Do we go higher from here?

I don't know the answer (hint: neither do you), but I do know that if we do, we're going to be continually led by the leaders in this bounce so far. And one of those leaders is the stock who's company everyone uses -- in some way -- whether you realize it or not: Google.