Where's The Out-Performance?
Some Charts Worth Watching
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If you missed last weeks letter, and indeed our letter the week before, I’d encourage you to check those out to give some context on why we’re currently very neutral on broader market direction (I probably should add that we turned bullish in October)
In this weeks letter, I thought I’d share some of my premium work as my clients are asking where potential out performance might come from if the market breaks out in the coming weeks.
I don’t see the harm in putting some of my charts out to the world so that you can watch them too.
I don’t like reacting to the market, I much prefer being prepared, so hopefully you’re the same.
Let’s dive into a few charts.
Semiconductors
Semis have been the only real area of tech we’ve been bullish on since the market bottom last year and now that we’re approaching those 2000 / 2021 highs, the big question I have is whether or not we’re gearing up for a monster break out in semis or whether some glorious moves are about to come to an end.
NVDA post earnings this week so I’ll be watching that with lots of interest.
Biotechs
Biotech’s have been the absolute worst on a relative basis for a long time, but are there signs we could be nearing some kind of out-performance?
If this ratio can resolve itself higher above 0.227 on a relative basis, that would be a data point to consider, and would be helped by a break out on an absolute basis also, so Biotech’s (includes IBB also) are very much on my watchlist.
Russell 2000
The small caps last week recorded a +1.48% week vs the S&P500’s -0.28% and while we all know, 1 week doesn’t make a trend, it’s worth noting that on a relative basis, the small caps are starting to look constructive.
Again, it’s just a chart worth paying attention to.
UK - FTSE 100 Index
We’ve now broken out to new all time highs on an absolute basis, and while that’s great for UK Investors, my sceptical nature tends to look at things through the lens of “what if it’s not as bullish as we think it is”.
This is just how professionals look at the markets, we’re always looking at the flip side and what a failed break out would mean.
It’s bullish at the moment, and if it breaks out vs the S&P500 (I could also use the ACWI) it would likely be another bullish catalyst.
But to highlight a recent example of an area we turned bearish on a few weeks ago to show what a failed break out in the UK could mean…
Chinese Internet (KWEB)
It’s just another example of being prepared for all outcomes. Chinese Internet is now being battered, but for me, it’s unsurprising, because that’s what the chart was communicating.
In Conclusion
The markets are very very tricky right now.
I highlighted as much last week, and while I know the charts laid out above look great, they just won’t come into play if the US Dollar continues moving higher.
That’s just what the charts tell me, and as much as I prefer a bullish market (don’t we all?)
For me, it’s now getting close to a 50/50 coin flip where we go next.
We’ll see how things play out, but it’s a week to week thing at the moment, but I do know I much prefer my ability to interpret data and my charts to anyone else’s thoughts and feelings on the matter.
How do you see it? Let me know in the comments.
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