Hello everyone,
Two key themes stand out to me in this market.
Theme #1: Broader participation
US Large-cap Growth dominated last year. But now, on the opposite end of the equity spectrum, we have Foreign Small-cap Value making a clean 3-year breakout to new highs!
In addition, a lot of diverse areas made 52-week highs on Friday:
Sectors: Industrials, Med Devices, Homebuilders, Semis, Financials
Countries: Japan, India, US, Europe, Canada, Australia
Assets: Gold, Bitcoin
Theme #2: The Intermarket is signaling lower rates
This week:
Gold, Bitcoin, Real Estate, Yen, Bonds, and Banks were up.
Oil and USD were down.
Russell 2000 outperformed the Nasdaq-100.
This is all consistent with lower rates. In the remainder of this post, I will elaborate on this second theme by looking at individual segments in more detail.
Bonds
Two weeks ago, we examined how the 10-year Treasury yield (TNX) faced multi-year resistance while TLT sat on Bollinger Band support. Last week, we saw how Commercial Hedgers finally began unwinding their record-long bond position.
Bonds continue to act constructively, which is at the heart of so much going on in other market segments.
Corporate bonds such as HYG (US Junk Bonds) and XCB (in Canada) were the first segments of fixed income to make major base breakouts in November. This week, they also came out of a 2-month consolidation.
Aggregate bonds are a mix of Corporate and Government bonds. They were the next segment to make base breakouts in December and are now lifting off that base after a retest:
Government bonds have been lagging. However, IEI has formed a beautiful 2-year base like many tech ETFs such as WCLD. I’m watching this chart closely to see if we get a breakout in the coming weeks.
Real Estate & Gold
With bonds displaying strength, it makes sense that Real Estate is perking up. Here’s XLRE showing a beautiful multi-year base. Keep an eye on it for a breakout.