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Market review 22.12.11
Hard to be bearish
2022 is nearing a close!
We’ll look at the big picture for global equities before diving into market leadership. There’s a ton of interesting charts and info to share so to keep today’s post succinct, I’ll be making ample use of hyperlinks.
Broad equity market: Hard to be bearish
One can overthink things and conclude we’re heading for a recession based on economic indicators:
Inverted yield curve
High interest rates = falling home sales & discretionary spending
Global PMI has slipped below 50 (link)
There’s a chart floating around that this is the most anticipated recession ever among economists. Even Elon chimed in on Friday:
Thankfully, the stock market is not the economy.
When we look at zoomed-out price charts for the broad market, things look very constructive. As I discussed a couple weeks ago, several global markets held long-term support while some others reclaimed big levels.
For example, the German DAX is now sitting above a key support level. I love when the price action is completely different from the picture painted by the media (eg. Germany’s unique energy crisis has curtailed their industrial output).
Here’s India’s NIFTY 50 Index which broke out to new ATH’s in Nov:
VWO (the Emerging Markets ETF) is lifting off 15-year support on the quarterly chart: link.
In the past 6 weeks, foreign stocks have been leading over the US, but that’s largely been due to a weak US dollar: link.
Various sentiment & seasonality indicators are also bullish for US stocks:
AAII Net Bulls (10-week EMA) hit extreme pessimism recently.
Put/Call Ratio (20-day EMA) is at extreme pessimism.
We're in the bullish window of the 4yr Presidential Cycle.
Valuations for US Small Caps among the lowest they've been in decades.
Charts for all the above indicators can be found in this tweet.
The S&P 500 is up 10% so far this quarter. Rather than try to fade this move, the Presidential cycle says this rally could have steam for another couple quarters. The All-Star Charts team has a nice chart that overlays the current Presidential term’s S&P 500 price chart on the historical 4-year term here.
Thus, be open to the possibility of the S&P 500 rallying to former highs and creating a new base:
Here’s what is leading & lagging within the market:
INDA, ITA, IAK, XLV are near 52-week highs.
SLX, TAN, IBB, SLV, KWEB continue to emerge as new leaders.
DBA, OIL lost leadership over month ago; XOP, PSCE have now fallen out too.
BLOK, BTC, MJ continue to be extremely weak.
We’ll look more at these specific areas, but first I want to share this chart showing various equity ratios that are tied to bonds:
From 2019-2020, growth stocks did very well as interest rates fell. The opposite happened over the next 2 years, where value stocks did very well.
If I were to venture a guess, leadership could be broader over the next while, much like 2016-2018 in the above chart. Something to think about as we look at specific areas of the market in the remainder of this post.
As mentioned earlier, the ETFs and indices closest to their 52-week highs are: NIFTY (India), XLV (Healthcare), IAK (Insurance), and ITA (Defense).
The XLV monthly chart shown below is forming a nice 1-year base within an uptrend. Watch it for a potential breakout.
The IHE weekly chart already recovered from a breakdown in Oct: link.
UNH is the largest US health care company and the 6th largest company in the S&P 500. It’s sporting an excellent weekly chart: link.
Insurance: Watch for this breakout on IAK to hold:
Aerospace & Defense: The monthly chart for ITA looks fantastic. Watch for a potential breakout from its 3-year base: link.
Railroads: CP is at resistance for the fourth time in the past 2 years (link). The more times a resistance level is tested, the more likely it will breakout.
Materials (including precious metals), China Tech, and Biotech are the next tier of sectors trying to reach their 52-week highs.
SLX (the steel ETF) looks fantastic on both the weekly and monthly timeframe as shown below.
The 3 major categories of tech stocks that have gained over 50% off their 52-week lows are: Semis, E-commerce, and China Tech: link. NVDA, SE, MELI, and SHOP were some of the leaders in the 2020-2021 rally so its not surprising to see them flying the most again.
The monthly chart for EA looks great. It’s another one to watch for a breakout: link.
IBB is within 14% of 52-week highs. Not bad considering that XBI and ARKG are 33% and 52% below, respectively. This is due to IBB consisting of more exposure to healthcare names and less to speculative biotech names: link.
While materials made breakouts, crude oil made a breakdown: link.
While many oil stocks have come out of multi-decade bases, there's also a number at major resistance. Perhaps oil stocks see some sideways action for a while: link.
ARKK is sitting on 5-year support. In past years, this line was a springboard off which prices jumped higher. This year, it's been a thud: link.
CVNA has been decimated – down 99% in the past 16 months: link.
BLOK weekly is below a key 5-year resistance line: link.
The MSOS ETF was showing a breakout on Monday but then reversed hard and closed the week down 23%! (that’s the worst week in the 2-year history of the fund). Not surprising given this has been the weakest part of the market all year: link.
Looking at the big picture, there’s lots to be bullish about on stocks. Furthermore, we could see broader bullish participation in the market rather than just being a growth or value market. We could also see foreign stocks do well, rather than US stocks taking all the spotlight.
I’ll leave you with these tweets to reflect on:
There was a lot covered in today’s post so I’m glad you made it all the way to the end. If you found this post useful, please give it a like and share.
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.