Is the Helsinki 25 Index not on your radar? Well it probably should be. It's hard to find a better gauge of risk appetite and risk aversion anywhere out there in the world.
Take a look at a chart of this rarely discussed index over the past half decade. Finland is where we want to be looking. In this case we're comparing it to the Allstarcharts Global Top 10 Index where we are equally-weighting the 10 largest markets around the world. See any similarities?
This week's Mystery Chart was a simple yet pivotal one... it was a ratio chart of Stocks vs Treasury Bonds.
With stocks struggling at resistance this week and Treasuries meandering beneath all-time highs, both appear to be at key inflection points.
Making things even more interesting is that the S&P 500 (SPY) relative to 20+ Year Treasury Bonds (TLT) ratio is also at a key level of interest. It is make-or-break time for these two asset classes so let's dive in and see what's going on.
Normally one day of price action doesn't get our attention, but given our cautious view of stocks from a structural perspective, it's worth outlining why today's candle in the Nasdaq 100 could potentially be a big deal for stocks all around the world.
There aren't too many charts in the Equity Markets breaking out of decade-long bases on an absolute basis right now...
This week's Mystery Chart was though, and the vast majority of you were buying it against former resistance turned support. We agree with that approach and would be doing the same here.
Thanks as always to all those who participated, but there's just one catch...
The chart was inverted! This means most of you were actually selling the breakdown in the Latin America 40 ETF (ILF).
Gold (GLD) broke out of a multi-year base last year and has more or less been trending higher since. No new news there.
But as JC explained in a post last week, Gold Miners (GDX) have finally broken out of a 7-year base as well after recently taking out resistance at key prior highs.
Today we're going to take a deeper look at the space.
We love setups like the one in Gold Miners right now. Not only did GDX resolve higher from a massive base but there is also a hefty amount of price memory at the breakout level which should act as solid support going forward.
Jeff deGraaf is one of those analysts who influenced me very early on. Something I've always admired about him is how much emphasis he puts on first identifying what type of market environment we're in, before then giving more or less weight to different tools and indicators. This is one of those important steps that I think gets forgotten quite often when you see investors trying to always incorporate a certain strategy or approach regardless of the environment. In this episode, Jeff compares this stock market crash, and subsequent recovery, to others in the past including 1987. He does a nice job of incorporating what is currently taking place in Bonds and Gold into his analysis for stocks. I think there are a lot of great lessons in this conversation with, who I believe, is one of the best Technical Analysts in the world today.
Weekends are a great time to take a step back and rip through thousands of charts to see what's really going on. The S&P500, Dow and all those other indexes can only provide so much information. At a certain point, you need to get your hands dirty and a really look under the hood.
This weekend was especially informative because we got new Monthly Charts on Thursday and new Weekly Charts on Friday. That's like Christmas for me.
Today I want to go over a few of the most important charts we want to keep an eye on going into the "Sell in May and Go Away" period.
The best part about the end of the month is that there's always a fresh batch of Monthly Charts waiting for us. We only perform this exercise once the candlesticks are completed, which in this case was Thursday April 30th. It takes me about half an hour to get through them all, which represents roughly 6 hours of my entire year's work. I promise you from the bottom of my heart that there is no single part of my entire process that I find more helpful than this monthly chart review.
You see, this process forces us to take a step back, and gives us no choice but to identify the direction of the primary trends. We use these to put shorter-term trends into context. So no matter what your timeframe is, I think first identifying primary trends, and then working our way down from there, is a huge advantage over a blind bottoms/up approach.
Here are the things that stood out most during my review:
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.
We turned bearish on equities in February from a structural standpoint and have been tactically positioning ourselves in both directions since. We've taken advantage of the bifurcated market we're in by continuing to find opportunities on both the long and short side. Right now we believe the near-term risk is to the downside in equities.
Last week we put together a list of key levels that we want to see certain assets hold before turning bullish on stocks over any longer-term timeframe. We're using this as our risk gauge for now.
As promised, we put that list into a table so that we can easily track and update its progress. Let's dive in and see what the weight of the evidence is telling us right now.
