In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
New Lows for Big Tech
When it comes to the most important stocks, it’s all about tech. Mega cap technology companies dominate the US indexes and are in just about everyone's portfolio. The chart below illustrates just how paramount their performance is for the broader market. We have overlaid the relative trend between technology stocks and the S&P 500 with the Nasdaq 100 on absolute terms.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Finding Support with Fibonacci
US equities appear to be regaining ground after giving back some of their gains from this summer. Following the corrective action of the last few weeks, the Nasdaq 100 ETF has finally found support at the 61.8% Fibonacci retracement level of the June-to-August advance. These levels represent a logical place for demand to show up and halt prices from falling further. We’re watching closely to see what kind of follow-through we get in the coming days. If this was really the bottom, we should see a higher high in the near future. On the other hand, a break below 294 would signal increased downside risk and likely lead to a retest of the June lows. From a tactical standpoint, this is our line in the sand for the Nasdaq 100.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Structural Trends Shift in Favor of Value
We just got fresh monthly candles for August last week. When we look at a monthly line chart of the growth vs value relationship, it’s hard to see anything but a recently completed double top formation and successful retest from below. The fact that this bearish reversal pattern is occurring at a critical level of interest at the dot-com bubble highs makes this price action even more significant. As long as this distribution pattern remains valid, we’re anticipating a structural reversal in this relative trend that favors value. And as shown in the upper pane, as far as the major averages are concerned, this means we want to overweight the value-heavy Dow Industrials and underweight tech-heavy indexes such as the Nasdaq 100.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Stocks Fail at Key Level
A wide variety of risk assets have suffered significant corrective action dating back to last year. As such, we’ve gotten used to looking for logical areas of potential support, or levels where we could expect demand to enter the market.
No levels have provided a better guideline than the prior-cycle highs from 2018. And when it comes to the stock market, no index provides us with a more comprehensive view of the price action than the Value Line Geometric (VLG), shown below. The Value Line is composed of roughly 1,700 components and is designed to measure how the average - or more specifically, the median stock is performing.
As you can see, the median stock is currently rolling over after a successful retest of its 2018 highs. As long as the Value Line is below 595, stocks are likely to remain under pressure.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
New Leaders Meet Resistance
Another group that has enjoyed the recent rally has been biotech. Biotechs have been among the strongest groups since stocks rebounded off their summer lows.
As you can see in the chart, IBB is now running into a significant resistance level as prices pull back at their year-to-date pivot highs. This 133 area also coincides with key prior-cycle highs from 2015. With so much price memory here, this is a logical level for some corrective action, and that’s exactly what’s taken place since last week. We’re seeing similar price behavior in other sectors and indexes. For the most part, it is constructive as stocks have earned a breather following the rally over the past few months.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
New Lows Streak is Over
One thing that has been consistent this year is seeing more stocks hit new lows than new highs. We’ve witnessed this kind of bear market behavior every single week of 2022. Up until now, that is. For the first time all year, more stocks made new highs than new lows last week. This is a huge development because if the market truly bottomed and we’re in the early stages of a new uptrend, we’re going to need more new highs than new lows. It’s just math. Following 37 straight weeks of net new lows, seeing this streak come to an end is yet another big piece of evidence in favor of the bull camp.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
The New Leaders
Biotech continues to be among the top-performing industry groups over shorter timeframes. They were among the first groups of stocks to bottom back in May. They were also first in line to complete a reversal pattern back in June.
This is illustrated by the double bottom in the S&P SPDR Biotech ETF (XBI) above. After digesting gains in a tight range for most of July, Biotech stocks are now resolving higher once again. We think the bullish resolution from this high and tight flag is a good roadmap for what other growth stocks and indexes are likely to do in the coming weeks and months.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Real Yields Roll in Favor of Gold
There has been plenty of evidence suggesting a significant breakdown in one of the world’s most critical inflationary assets, Gold. Miners look terrible, Silver and Platinum are weak, and the Silver/Gold ratio recently hit multi-year lows. These aren’t the type of data points that support higher gold prices. Real yields are another piece of evidence we can add to that list. The chart below shows the US 10-year real rate inverted and a chart of Gold. They look almost identical. Gold futures tend to trend lower when real rates rise (moving lower on the chart). Despite every reason to break down, Gold has remained resilient. And now, as many of the negative data points mentioned above begin to reverse, including real yields, a rally in gold could ensue.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Materials Hook Higher
Procyclical areas of the stock market are bouncing back after the recent bout of selling pressure. The Equal-Weight Materials ETF RTM is a prime example as it reclaims a critical level of former support. Now that these raw material and commodity-related stocks are back within their prior ranges, we're watching commodities closely to see if they follow suit. As long as RTM is holding above its shelf of former lows from last year, our equal-weight commodity index is most likely finding support at its respective level. On the flip side, the search for a floor in commodities is likely to continue if the recent rebound in materials is only a dead cat bounce. Ultimately, these two charts should resolve in the same direction.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
ETH Kicks Off Crypto Rally
It was a busy weekend for cryptocurrencies, and Ethereum, in particular. The world’s second-largest crypto just resolved higher from a bearish continuation pattern right at a key polarity zone.
When patterns fail, it’s always great information. In this case, a downside resolution in the direction of the underlying trend was the higher probability outcome, but it didn't happen that way. Instead, buyers took control and forced an upside resolution. Another thing that makes this price action stand out is where it took place. Ethereum just dug in and reversed after a brief shakeout beneath the 2017 highs. As long as we're back above the prior-cycle peak of 1400, the bias is higher.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Banking on Support
Banks, broker-dealers, and capital markets have all been underperforming despite the rising rate environment. The entire financial sector has been a disappointment since last year.
When it comes to banks, the Regional Banks ETF is an excellent indicator to measure risk appetite. When times are good, these stocks are participating.
As you can see in the chart, price is currently holding above the AVWAPs from the 2018 highs and 2020 lows. This level represents a logical potential support zone.
Notice in the lower pane that momentum (as measured by the 14-period RSI) never reached oversold conditions during the current correction. Not many industry groups can say the same.
As long as this economically sensitive group remains above this confluence of support, it is a positive for the overall market.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Equites Suggest Rates Roll
It’s not just commodities and the bond market that are disagreeing with the action from yields these days. We're not getting confirmation from the stock market either. The Equities For Rising Rates ETF (EQRR) always offers excellent information to either support or contradict what we’re seeing from the bond market. When we overlay EQRR with the US 10-Year Yield (TNX), they look almost identical.
What this chart tells us is that the stocks that tend to do well in a rising rate environment could not hold their former highs and are now stuck below overhead supply. This lack of confirmation supports our outlook for a pause and some corrective action from yields in the near future.
