Market review 22.08.07
Hello everyone,
In the past 6 weeks, I’ve discussed the bullish setup for the broad equity market. This tweet summarizes it:
A lot of diverse parts of the market hit multi-year supports at roughly the same time. I’m talking about small-caps, financials, biotech, bitcoin, home builders, Europe, and Canadian dividend ETFs to name a few.
But now after a big bounce, many are wondering if this is a countertrend rally or the start to something more sustained. One clue is to watch the SPX:GDX chart below. It has formed a 7-year base within an uptrend. A breakout would be a major risk-on signal.
Rather than debating whether this rally is sustainable or not, following sector leadership has been much more rewarding. The worst thing a trader can do is be stubborn and abuse the price charts:
Let’s look at what’s leading.
Emerging leaders: Biotech, solar, IoT
Around mid-June, we looked at the relative strength in biotech. XBI is now up 40% after hitting major multi-year support.
We also looked at solar 6 weeks ago. ENPH is up more than 50% since then!
And 3 weeks ago, I discussed the very niche IoT sector. Since then, stocks like DGII and SWIR are up almost 40% and 20%, respectively.
Energy
While stocks have been rallying, the oil sector has been pulling in.
WTI Weekly. Crude oil just made a breakdown.
However, the bigger picture remains good for energy stocks. Names like CNQ have come out of multi-decade bases.
It seems probable that after a bit further weakness, sentiment resets, and oil stocks hold major support levels before rallying. Keep in mind, smart $ positioning in crude oil futures is very bullish.
Also, oil doesn’t need to climb for these stocks to provide a nice positive return – oil simply staying above $70 gives these companies very healthy profit margins. This is a point that Lyn Alden made recently (link) and the chart for ENB illustrates this point very nicely:
Finally, I want to touch upon uranium. Below is the weekly chart for CCJ (the largest uranium producer) which is forming a very nice base within an uptrend.
It’s tough to say whether uranium is a more similar trade to oil or solar. Regardless, I’m long on a breakout.
Personal note
There was no blog post last week because I was off getting married!
It was a small wedding, but everything was beautiful, and we captured some great memories. My wife & I enjoyed some R&R time afterwards. On the first morning as a married couple, we woke up to this amazing view:
Trading is a means to an end, and we should never lose sight of what is most important in life. I am grateful to have my wife, friends & family, health, and to be able to call Vancouver my home. 🙏🏼
Twitter: @alphacharts.
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.