In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
A Warning From Banks
With risk-seeking behavior increasing, Financials and banks are lagging behind and not participating to the upside in a way we’d expect. The chart below is an equal-weight representation of the six largest banks in the US. This index can act as a leading indicator for financials more broadly. The fact that the index has not been able to hold the 2007 highs in an environment where rates are rising globally is a concern. Throughout history, you don’t tend to see bull markets without financials. These are the largest and most important financial institutions in the world. Bulls want to see them carve out a bottom here and catch higher along with other cyclical stocks. It should happen soon if it’s going to.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Is There Enough in the Tank?
Pretty much everything in the world of energy has been on fire for the last quarter. Crude oil and energy stocks have been the stand-out performers this year as both have enjoyed a swift leg higher since early January. Despite the impressive price action, both are at logical levels to do some consolidating. Crude Oil and the Energy Sector SPDR (XLE) are challenging critical levels of overhead supply at former highs. Both of these areas have acted as resistance in the past, so it would not be unusual for sellers to show up once again. While the primary trends are still very much intact for energy stocks and futures, a breather here and some digestion of the recent gains would be constructive. The next key piece of information should come in the form of how that digestion looks. Do we correct through price, or time?
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
A Reversal In Risk
Not only are the most battered areas of the market digging in at logical levels of support and resolving higher, so is high-yield debt relative to Treasuries (HYG/IEI). This crucial ratio is an inverse illustration of credit spreads as we’re comparing the bond prices instead of the yields. HYG/IEI putting in a potential failed breakdown and resolving higher speaks to a reprieve in market stress and bodes well for risk assets. It’s no coincidence that we’re seeing similar action at the index level as the S&P 500 is back above its January lows. Bulls want to see this ratio catch higher in the coming weeks as this would support a tradable low and fresh rally for stocks as risk-seeking behavior re-enters the market. There is still some work to do, but we’re moving in the right 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.
False Start of Failed Breakout?
The markets have been a bifurcated mess for more than a year now. During this time the relative strength from commodities and commodity-related stocks has stood out. Both have been on a tear and continue to rip higher. But despite the broad strength in commodities, Copper has gone nowhere since many risk assets peaked in May of last year.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Is This The Beginning Or The End?
Not only did commodities have their best week in more than fifty years, but Copper and Gold broke to new highs – Copper to new all-time highs and Gold to fresh 52-week highs. And similar to the bullish momentum thrust in the BCOM index, when we zoom out on these charts we get the sense we’re at the beginning of a major trend -- not the end of one. Both Copper and Gold are just beginning to break out of decade-long bases. The last time they broke out of similar basing patterns these metals, and commodities as a whole rallied for almost a decade. If these breakouts are valid and we continue to see broad strength among commodity contracts, these raw materials could provide monster returns for years to come.
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 Value Among Small Caps
We've been pounding the table on the importance of the 2021 lows for small caps. After consolidating for almost a year, sellers took control and knocked prices beneath this critical support zone last month. Until this level is reclaimed, risk is to the downside and we don’t want to own the Russell 2000. However, we can own small cap value stocks as they continue to show impressive relative strength. This is illustrated by the Russell 2000 Value ETF (IWN) holding above its former lows -- unlike its peer indexes in the lower panes. This speaks to risk-seeking behavior and is another example of the cyclical leadership theme that is playing out across various markets. And just like we don’t want to be long the indexes that are beneath their 2021 lows, when it comes to individual stocks, we want to focus on those that are resolving their ranges higher for long opportunities.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Rates Spike Around The Globe
Interest rates are on the rise, and it’s not just in the US and Europe. The Japanese 10-year yield hit its highest level in over five years last week. Like Germany, Japan is now back in positive territory after a half-decade of offering negative yields. All of this action is supportive of the new highs we’re seeing from the US 10-year yield. With rates on the rise around the world and the question turning into “how high” – as opposed to “if” – the FED will hike, it’s time to look for opportunities in the areas of the market that benefit the most from a rising rate environment.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Testing Former Resistance
We've been pounding the table on the importance of defending the 2018 highs for a long time. These levels represent when risk assets peaked four years ago. The chart below shows the Value Line Geometric Index pulling back to its 2018 highs. This index measures the median stock performance and is an excellent way to view how the overall market is doing. Right now, it’s telling us that the average stock has endured significant damage and has erased almost all of the progress from recent years. Bulls really want to see these 2018 highs hold. If they do, the bias is still higher and the structural trend is intact. But if this level is breached, it will be a major bearish development for the broader market and risk assets in general.
