Market Review 24.07.21

Broader participation but quicker rotations

Hello everyone,

In today’s post, I’ll review some charts of global equities to maintain perspective of the bull market.

I’ll also discuss all the drivers for a sustained rotation into small caps but also highlight some short-term hurdles for this space.

Global Equities

The S&P 500 fell 2% this week. Beneath the surface, there was a big rotation:

• SMH: -9.6%

• XLK: -5.5%

• XHB: +3.2%

• KRE: +7.5%

I’ll discuss this rotation more in the next section, but first, I want to show that the big picture remains bullish for global stocks.

First, the monthly chart for the S&P 500 equal-weighted index shows us sitting above 3-year support:

It’s not just the US.

ASEA (SouthEast Asia ETF) is making a massive 7-year breakout!

Weekly charts for the UK and Switzerland are sitting just above major support:

Resource-heavy Canada and Australia also sit above significant support. I’ll touch more on the resource sector later in this post.

The setups in global indices and the equal-weighted SPX nicely lead me into a discussion on rotation and breadth expansion.

The ingredients for a small-cap rally

A brief Technical Analysis recap of how a rotation into small caps gradually formed:

• In April, we saw that IWM was retesting a 2-year base breakout while TNX (10-year Treasury Yield) hit the upper monthly Bollinger Band (BB).

• On May 30th, IWM outperformed QQQ by over 200bps. This has marked IWM’s pivot lows over the past couple of years.

• On July 11th, IWM outperformed QQQ by 580bps – the third largest on record. Among the other top prior occurrences, IWM typically went on to outperform over the following 3- and 6-month period.

• Today, the SCTR board shows IWM, XBI, and KRE among the leaders: