In mid-April, we posted a list of 20 key chart levels we were monitoring in some of the most important assets around the world. We've used this as a risk-gauge to measure the internal strength or weakness of the market in the time since.
The list started at 60% bullish, never fell below 50%, and has been stuck at 90% with the same two bearish hold-outs for the past month now. The list has grown consistently more bullish since we began tracking it as more charts continued to break above our levels.
Since the end of May, 18 of the 20 items have been in bullish territory and many have run a good amount from our risk-levels. With the strongest stocks and indexes making new all-time highs and confirming this bullish outlook, prices have spoken and it's time we retire our bull market checklist.
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.
When markets go through periods of elevated volatility/stress, many market participants look to catch the exact bottom, but a better approach in our view is to buy on the way back up!
The trend for stocks is down. When they do rally, they scream dead-cat bounce. And bonds keep going out at new all-time highs every week. Gold is at its highest prices in 7 years and Interest rates are in free-fall along with bank stocks. What type of environment does this appear like to you? Is it the kind of market where we want to be buying stocks aggressively, or is this the type of market where we want to be smaller, cash heavy and more defensive?
Let's try to figure it out together.
First of all, Industrials historically have the highest correlation with the S&P500 of all the S&P Sectors. This is what that group currently looks like. One of our most basic technical principles is that former support turns into resistance. We call that Polarity. You can see this taking place in this sector index:
If you're one of these people who thinks the lows for stocks are in, which sectors would you expect to be leading the way higher? The big important groups that fell the hardest, and therefore should bounce the most? Probably.
Well, what if I told you that it's been the opposite.
The leaders off the lows are Utilities, Consumer Staples, Healthcare and REITs:
We are constantly analyzing market breadth. We do this not just for insight into the strength of the current trend but also because it helps us identify key turning points. We outlined a variety of deteriorating breadth measures in a post last month to support our bearish outlook on stocks, and the signal turned out to be quite timely as the market collapsed soon after.
With the market now severely oversold amid one of the swiftest bear markets in history, we're looking to breadth measures once again for signs of a tradeable low.
Last week we started to see a few momentum and breadth divergences form in Indian stocks, however, they've not yet been confirmed by price.
In this post, we're going to outline what price level in the Nifty 500 would confirm them, what confirmation would mean for our intermediate-term outlook, and how we're managing risk in both scenarios.
There has been a lot of risk in the stock market over the past 2 months and that still has not changed. Things are getting worse, not better. I tried to emphasize in this week's Live Call that we have NOT seen any evidence to suggest that the worst of the selling is behind us.
We've been inundated with emails from Financial Advisors and traders all over the world. From New York to London, South Africa, Malaysia, Laguna Beach they keep coming in. We work really hard and it is so nice to see how much we've been able to help people, both pros and every day hard working individuals. Thank you from all of us at Allstarcharts! We don't take these notes for granted even for a second.
We know times are tough for some people right now. I have friends and family that lost their jobs today. I'm seeing it outside of markets.
Just as we focus on the strongest markets and stocks to find opportunities during equity bull markets, we look to identify the weakest areas during bear markets. We just want to be in the strongest trends, regardless of their direction.
A few weeks ago we ran some statistics to highlight US stocks that were bucking the trend during the selloff, as those would be the areas to focus on if/when equities eventually regained their footing. While many names have fared well, we were a bit early as the market soon broke below our risk management levels, putting us in a position where we no longer want to be long stocks.
