I've been talking markets with Liz Claman for the better part of the last decade. Whenever I'm in New York, I like to swing by the FOX studios to say hello. This week we discussed the relative strength in Semi's and how I think they will lead stocks and the S&P500 to new all-time highs.
I'm in New York this week for the annual CMT Association Symposium. I always learn so much at this event, not just from the presentations, but from the attendees themselves. A lot of smart folks in one room is a win for all of us.
Tuesday I was up at the Nasdaq to chat with Catherine Murray about the S&P500, my favorite Semiconductor names and where we are in Canadian Equities and Crude Oil.
Last week's Chart of The Week discussed the "One More High" type setup we often see prior to price consolidations or pullbacks, providing some context around why we continue to remain structurally bullish, but not very aggressive in the short-term.
One of the topics I spoke about during my Chart Summit presentation on breadth last month was the relative performance of Equally-Weighted versus Cap-Weighted Indexes.
I always hear that the market cannot go higher on an absolute basis if the Equally-Weighted S&P 500 is underperforming the Cap-Weighted.
It's been about three weeks since I wrote this post looking at breadth across various Equity markets since January 2018.
JC wrote a post today about "The Cards We've Been Dealt" which references some of these stats, so I wanted to update some of them and highlight another way we use them to measure breadth.
We have to play the cards we're dealt. Like it or not, this is the environment we're forced to invest in, but only if you want to. You don't have to invest. Cash has been a viable option for 6 months. It's worked out great. Most stocks, sectors, US and International Indexes are still below their January 2018 highs. I can give you the exact numbers like we provide for our Institutional Customers, but just take my word for it. It's not even close. We've been in a 14-month sideways range, or downtrend, depending on who you ask. Either way, it's not an uptrend for most stocks.
Now, this 14-month nothing burger comes within the context of a major bull market in stocks, that arguably started in 2016. After a monster run throughout 2016 and 2017, the stock market, both U.S. and abroad, has consolidated those gains. It seems perfectly normal, and well deserved, if you ask me.
We've been erring on the long side of stocks for the last 6 weeks, taking trades where the reward/risk is heavily skewed in our favor, but are still seeing mixed evidence regarding the market's ability to make new highs in the short-term.
The Equally-Weighted Semiconductor Index recently made new all-time highs, while the cap-weighted sits a few below its 2018 highs. What's next for Semis? That's what I hope to answer in this post.
Everyone these days is talking about yield curves inverting. It's the topic du jour, similar to things like golden crosses and 200 day moving averages. The difference is that this one is more intermarket oriented. "Well if this happens to bonds and that happens to rates, then this historically happens to stocks, or the economy". Observing the behavior of one asset class to help make decisions on another is called Intermarket Analysis, or "Cross-Asset" in some more institutional circles.
I don't think there is much more for me to say at this point about the yield curve. The crew over at The Chart Report pretty much covered it all beautifully last week. The short end of the curve (10-year minus 3-month) turned negative, but the long end of the curve did not. The 10s-30s spread is steepening and controlled by free markets vs the fed controlled short end. We've seen this happen before, like in the 90s for example, without it sparking bear markets.
We've been writing about the slow improvement in price, momentum, and breadth over the last few months, leading us to err on the long side of stocks. With that said, we continue to see signals that Equities are not out of the woods just yet.
