From the desk of Steve Strazza @Sstrazza

Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.

From Failed Moves Come Fast Moves

Markets have been unequivocally choppy. Breakouts are failing, new highs are dwindling, and it’s becoming more challenging to find trending opportunities. Last week, we discussed how Semiconductors failed to breakout, and asked whether its peer industries would follow suit. Well, we have our answer now… One of the strongest industry groups in the last two months, Internet, just printed a failed breakout at its February highs. Software looks frighteningly similar.

Digging into some of the components, Amazon, the largest weighting of the group, is in the process of retesting its September 2020 highs of 3550. And to compare the industry group to one of its peers, Semiconductors have also put in a failed breakout. 

From the desk of Willie Delwiche.

A recurring theme when it has come to market breadth is that while it has not been keeping pace with the indexes, it has not been breaking down. That is starting to change. Net new highs have turned negative on a 21-day and 63-day basis as divergences are starting to look more like meaningful deterioration. If they turn negative on a 52-week basis (shown below) it would suggest a more significant breakdown in breadth and a building of downside risks in the indexes.

This is the video recording of the July 15th Town Hall Meeting w/ Willie Delwiche

07/15/21 2PM ET

From the desk of Willie Delwiche.

This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

• Real Estate moved into the top spot in our rankings. It was one of four large-cap sectors to make new 52-week highs last week (the others were Consumer Discretionary, Health Care & Technology). No small-cap or mid-cap sectors made even 13-week highs.
• Financials have been short-term & mid-term laggards, with deteriorating conditions in Banks across market cap levels weighing on the sector.

From the desk of Steve Strazza @Sstrazza

Check out this week’s Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.

By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the context of the big picture and provides insights regarding the structural trends at play.

Let’s jump right into it with some of the major takeaways from this week’s report:

* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.

From the desk of Steve Strazza @Sstrazza

Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.

Global Yields Threaten European Equities

Last week we discussed the underperformance of European banks and the potential implications in the near term for risk-taking behavior.

This week, these suspicions were confirmed when price fell back below a key level, confirming a failed breakout. Similarly, the MSCI United Kingdom ETF, one of the most important economies within Europe, was unable to break above a significant resistance level around 34. Now, both are trapped below overhead supply.

If European financials and UK stocks are trapped below their pre-covid highs, it’s consistent with an environment where markets remain messier for longer and risk assets are vulnerable.

From the desk of Willie Delwiche.

A DYNAMIC APPROACH TO PORTFOLIO MANAGEMENT

The number one question I have gotten from financial advisors over the course of two-plus decades in this business is “What should I do now?” The answer can sometimes be “nothing”, but it cannot always be “nothing”. Dynamic portfolio management is about finding the right balance between following existing trends and adjusting as necessary to new information. To do this we need to have a good grasp of time frames. Every investor has a timeframe. Every system has a timeframe. Finding harmony between the two helps provide the appropriate balance between action and inaction.

From the desk of Willie Delwiche.

I might be old school, but I like to look within the Financials sector for leadership trends that provide some clues for the path of the market overall. Specifically, I keep an eye on what Banks and Broker/Dealers are doing on an absolute basis but also relative to the S&P 500. The XBD bottomed versus the S&P 500 early last year and led the rally into Q1 2021. The BKX began leading a bit later, but its relative strength carried further into this year. Both now have rolled over and are moving lower versus the S&P 500. As we have shown recently, the XBD/SPX ratio tends to move with our risk on/risk off ratio and so a breakdown in the Broker/Dealer index may be a warning signal about the overall risk backdrop.