From the desk of Steve Strazza @Sstrazza
For the week ended Friday, June 5, 2020:
Every weekend we publish performance tables for a variety of different asset classes and categories along with commentary on each.
This was a big week for market bulls as a myriad of consolidations resolved to the upside while the powerhouse Nasdaq 100 $QQQ finally became the first major index to reclaim its all-time highs. The only assets to post negative returns this week were the usual “safe-havens” such as Treasuries, Yen, and Precious Metals. Everything else was green. How’s that for improving risk-appetite?
In this post, we’ll highlight that this broadening participation and flight towards risk-assets is more than just a one-week phenomenon. We’ve seen this type of price behavior in some asset classes for over a month now.
The resurgence in risk-taking first showed up in US Equity Markets in early May, evidenced by the strong outperformance by Dow Transports $DJT and the SMID-Cap complex over the trailing month.
This is no dead-cat bounce for these areas at this point as each has more than reclaimed their 62% retracement level from the Q1 crash.
Take Transports, for example. After almost two months of consolidation, price recently sliced through potential resistance like butter, with a breakaway and runaway gap above its key 2018 and 2019 lows, respectively. Momentum is firmly overbought, confirming the recent breakout.
Click chart to enlarge view.
It would be healthy to see price digest the past two weeks’ gains above the 2019 lows ~9700. That’s what we’ll be watching for. For now, this chart can’t be interpreted as anything but bullish.
Another way to visualize increasing participation from some of the weakest structural areas is by looking at our Sector ETF table.
Just a few months ago, we were skeptical of the bounce off March’s lows from the most cyclical sectors such as Financials $XLF, Industrials $XLI and Energy $XLE due to their lackluster performance after enduring some serious structural damage. These sectors were not only the top performers this week but are leading by a wide margin over the trailing month as well.
We wrote about more and more consolidations resolving to the upside this week. These long-term underperformers are among the most important recent additions to that list.
These beaten-down groups are likely to take a breather relative to the broader market after their recent spurt of outperformance. Although, this is an incredibly constructive development so we’ll be watching closely to see if they can continue to participate on an absolute basis if and when this happens.
Be sure to read our recent post where we take a deeper look at the recent rotation into these long-time laggards.
Looking now to our Industry ETF table and we can see the same trends playing out over the trailing week and month.