Mike Hurley has been an inspiration to me for many years. When it comes to market breadth, this is the guy. He'll tell you he learned it from his predecessors and how he's standing on the shoulders of giants and all those things he discusses in this episode, but for me personally, he's been a great influence for sure. Many of you know how seriously I take my breadth work and how valuable it has been to so many of us for many years. It's people like Mike and others who have helped my process evolve to where it is today.

From the desk of Steve Strazza @Sstrazza

Thank you to everyone who responded to this week’s Mystery Chart.

We had a few buyers but most of you were selling at this logical level of interest or exercising patience to see how prices react here. A few responses also pointed out that this likely isn't the best time to enter on the long side but are anticipating an eventual breakout and would be buyers if and when we get it.

This is the same camp we'd fall into and we provide details why in the original Mystery Chart post. With that as our backdrop, let's look at the chart.

From the desk of Steve Strazza @Sstrazza

We look at a variety of intermarket ratios that span just about every asset class in order to get a read on interest rates. Here is one that we don't discuss too often, but its relationship with the 10-Year Yield is obvious from looking at the chart below.

The S&P High Beta/S&P Low Volatility (SPHB/SPLV) ratio made significant lows around the same time and place as the 10-Year has several times over the past decade.

From the desk of Steve Strazza @Sstrazza

Thanks to the handful of you for playing and entertaining this week’s Mystery Chart.

My apologies if this one was a bit of a layup, but that was the point. You were all buyers and so are we. Since we're all in agreement let’s dive right in and talk about why we’re bullish on this chart but more importantly, why it matters.

Stocks got hit nicely this week and we did very well in our bond positions. So where do we profit next?

From the desk of Steve Strazza @Sstrazza

Thank you to everyone who responded to this week’s mystery chart.

We had mostly "do nothing" responses again this week but buyers or potential buyers came in close second, many of which said they were waiting for confirmation of the momentum divergence and failed breakdown before taking action.

We only had a few sellers, which is interesting because that's the camp we'd fall into as long as prices remain below support.

One of the main reasons for our bearish bias towards this chart is the fact that it's been in a long-term downtrend and consolidations tend to resolve themselves in the direction of the underlying trend.

We've been very clear about how we wanted to avoid owning stocks this month. Fortunately, bonds have been the beneficiaries of the relentless selling in these stocks. Nothing has changed for the positive. But it's actually some former leaders completely falling apart that now has my attention.

Remember when Industrials broke out to new all-time highs? We said that as long as that was the case, how bad could things be? Well, Industrials are no longer above those former highs and actually just broke down to new 10-year relative lows. This is behavior consistent with an environment where we want to be selling stocks, not buying them:

The risks associated with owning stocks are currently elevated.

There are a lot of things I can say, levels I can point out, possible outcomes I can walk you through, all those things. But the one common denominator between all of those is that the risk in owning stocks is currently higher than it normally is.

This is an important time to remember your original investment objectives, time horizon and risk parameters. Before buying a stock, or entering any investment for that matter, these 3 questions need to be answered. I can't answer them for you. But what I can do is show you what we're seeing from an intermediate-term horizon.

Our goals here are to make money this quarter. We care about the coming weeks and months. It doesn't matter to us what the market does next year, and it doesn't matter what it does today. Weeks and Months. That's our focus.

Over the past month, Bonds are up a bunch as the collapse in Interest Rates has resumed. We jumped on board this bond trade last month and so far it's working.

Meanwhile, a majority of U.S. stocks are actually down over the past month. While the S&P500, Dow Industrials and Nasdaq100 have gone on to make new highs, the NYSE Advance-Decline line (stocks only) did not, Small-caps did not, Dow Transports did not, and a majority of individual stocks did not. It's only a minority of names doing the work, particularly large-cap stocks and some higher dividend paying areas like REITs and Utilities.

When you run the numbers, most stocks in the U.S. are down over the past month, with negative average and median returns for the Russell3000 components. It's the bonds that are up and I think they're just getting started.

As you guys know, we've had a much more defensive approach to the stock market over the past few weeks, especially compared to how bullish we had been for so long. There is a time to be big and aggressive and a time to be small and cash heavy. I believe we're currently in the latter of those two categories.

Here's the clip in full:

There is a lot going on in the market right now, not just in the U.S. but globally. The intermarket relationships between Bonds, Gold and the US Dollar are having a major impact on equities.

January is a month that gives us a lot more information than most other months throughout the year. We have the data now that we can use to help us identify primary trends.

Volatility is picking up. Daily swings are getting larger. I’ve seen this story before.

We discuss all of this and a lot more.

This is the video recording of the February 2020 Conference Call.

*NOTE: This Post and Video was originally intended for Premium Members of Allstarcharts Only. But due to the circumstances, we have unlocked it for everyone to watch and download the slides. We feel this can be used for educational purposes moving forward. Thank you for understanding.

In this Episode of Allstarcharts Weekly, Steve and I discuss all the reasons why we're buying bonds right now instead of stocks and commodities. The big point here for me is that it's not just one chart. There is no single holy grail suggesting we buy bonds. This is a weight of the evidence conclusion. It's not one chart, it's hundreds of them all pointing to the exact same thing: Sell stocks and Buy bonds!