Market review 23.02.19
Market review 23.02.19
The intermarket and current opportunities
Hello everyone,
The list of bullish factors for stocks that were in place months ago remain intact. But the question always is: which equity segments provide the best opportunities right now?
Before getting to this, I’ll discuss everything outside of stocks first: bonds, currencies, and commodities.
Sorry to add to that pile. 😊
Bonds
Bonds drive a lot of intermarket stuff, as the chart below shows.
The rally in TLT off the Oct lows sparked some outperformance in tech stocks, while traditional sectors underperformed.
But now bond yields are breaking out. Here’s the 1-year yield:
And here’s the widely-tracked 10-year yield lifting off support:
The TIP:IEF bond ratio says inflation isn’t dead yet. The chart below is very similar to the one for RINF (30-yr inflation expectations ETF).
I’ll build on everything discussed so far in the currencies and commodities sections that follow.
Currencies
Similar to the previous chart, AUD:JPY refuses to break down. This is consistent with higher commodities and bond yields.
Meanwhile, the US Dollar Index is at multi-year resistance.
Commodities
This week, the latest monthly CPI and PPI data was released. More important than these lagging economic numbers is how commodity charts look like.
Weekly charts for DBA (Agriculture) and DBB (Base Metals) look good. DBA is forming a base, while DBB is retesting a base breakout.
Checkout the COPX:GDX quarterly chart.
While the quarter is far from over, this ratio has significantly punched through 10-year resistance. This is consistent with a rising TNX (10-yr bond yield).
Best opportunities?
Dividend and value-tilted baskets (eg. DXJ, IEP, and XDV) continue to act strong:
2 weeks ago, I discussed how traditional areas of the market can outperform tech. Since then: IJR, DEEP, KRE, SLX, and COPX are down < 2% while tech leaders XSD and KWEB are down 3-6%. This outperformance can continue in the short-term.
I’m looking for a leg higher in IJR, DEEP, and KRE relative to SPY:
Materials have been a focus of mine for several quarters and continue to be right now. SLX and COPX remain leaders in this market:
Within copper, TECK is a leading stock. This is Druckenmiller's 9th largest holding, and Einhorn's 5th largest.
Within steel, ZEUS is fantastic. While it’s the smallest steel name (by market cap), it’s the strongest (gain off 52w low + new 52w highs).
Even gold looks attractive, believe it or not. Monthly charts for XAU (Philly Gold Miners Index) and OR (Osisko Gold) are both sitting on major support. Remember, this is happening while USD is at resistance!
Of course, industrials are also stellar. Here’s ITA coming out of a 4-year base on the monthly chart. While this is going on, there’s people out there trying to fade the equity rally!
And lastly, I want to throw in a consumer staple name: Hersheys. This is a company that has outperformed the S&P 500 for decades (14% CAGR vs. 10% past 40 years). And the weekly chart is strong:
Closing Notes
The equity market remains bullish, and many segments of it are attractive.
Even some of the star portfolio managers that are known to run concentrated portfolios are highly diversified. For example, see the current vs. historical sector allocations of: Druckenmiller, Burry, and Tepper.
I’ll leave you with this tweet to reflect on:
That’s all for this week! If you found this post useful, please give it a like and share. Thanks for reading.
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.