From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridg

Money really likes to flow where it's treated the best… and as far as sectors and even most industry groups go, there simply isn't much alpha out there at the moment.

In analyzing relative trends, we’re always aware of how the overall stock market is performing against defensive assets. 

In today’s post, we’re going to check in on those sectors investors pile into when seeking safety as opposed to positioning for risk.

Utilities, Real Estate, and Staples... the “bond proxy” groups. Let's dive in.

Here's a custom index of them all charted relative to the broader market.

Notice how the relationship has stopped trending lower since it bottomed back in July.

From the desk of Steve Strazza @sstrazza and Grant Hawkridge @granthawkridge 

Last week, we pointed out that some US stocks are going up, but most are not.

The S&P 500 and the other US large-cap indexes have continued to grind to new highs all year, completely unphased by any of the deterioration in breadth beneath the surface.

But, when looking at the global stage, things are different… 

In this post, we’ll look at the current state of market breadth around the globe and discuss whether internals are supporting the new highs in many international indexes. 

It's always a worrying sign when price is making new highs at the index level with a lack of confirmation from internals. But that simply isn’t the case for ex-US equities these days. 

In fact, it’s just the opposite, as we’re seeing our breadth metrics support and confirm the recent price action on a global scale. 

Here we’re looking at the percentage of developed and emerging markets above their 50-day moving averages:

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

For the better part of 2021, we've been pounding the table about markets being a chop fest. And we'd seen little evidence suggesting this was likely to change any time soon--until this week, that is.

Trendless… range-bound… call it whatever you want, but the path of least resistance for stocks and many other risk assets has simply been sideways!  

Alas, we’re seeing some strong bullish action this week that we simply can’t ignore. Let's talk about it.

Before we get there, though, let’s take a step back and look at small- and micro-caps, as they provide great illustrations of this sloppy stock market story...

SMIDs and micros have not been able to make any real progress for most of the year. 

From the desk of Steve Strazza @sstrazza and Grant Hawkridge @granthawkridge 

Whether more stocks are going up or down these days simply depends on where you look. Some advance-decline lines are moving higher, but others are moving lower.

Weakness and divergences in these indicators are more often than not resolved over time, but the longer they persist the more concerning they become.

This hasn’t been an issue for most of the major averages, as the S&P 500 and other large-cap indexes keep making new highs with confirmation from their A/D lines. 

Yet when we look beneath the surface, and particularly down the cap scale, we're seeing a different story. Ultimately, some stocks are going up, but most are not.

You’ve probably heard already, but the current environment is an absolute mess as the weight of the evidence continues to hang in the balance. In today’s post, we’ll discuss some charts that do a great job illustrating all the mixed signals out there right now. 

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

In today's post, we’ll discuss some of our favorite and most important intermarket ratios and see what they’re suggesting for markets and risk appetite around the globe.

One thing we found interesting when digging through these charts is that many of them look a lot like stocks do right now. 

Sideways. Range-bound. Messy. But, within the context of underlying uptrends.

So these are basically just continuation patterns on shorter timeframes.

But, after consolidating for months and even quarters now, we are beginning to see some resolve higher… kind of like we’re seeing from stocks on an absolute basis.

Coincidence? Probably not.

We think this makes a lot of sense and bodes well for risk assets. Let’s take a look at some of these charts now.

Here’s one of the most important cross-asset ratios we track, and it’s a great example of exactly what we’re talking about. 

This is the stocks-versus-bonds ratio $SPY/$TLT:

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge 

Let’s flip the script this week and take a more granular approach to our analysis of market internals.

In recent months, we’ve written at length about deteriorating breath. While it’s been our position that the divergences in these indicators are normal following an onslaught of initiation thrusts like the ones we had last year, the lack of participation beneath the surface was drying up to levels that were simply not sustainable.

This lack of confirmation has caused many to question the new highs from the S&P 500 and other major US averages. But, the major averages have masked the pervasive weakness we’ve already been experiencing beneath the surface this year.

In last week’s post, we discussed this weakness in breadth and posed the following question:

Perhaps we’ve already seen the market correct beneath the surface. Maybe that was it…

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge 

We’ve been super obnoxious about the deterioration in new highs we continue to see in the US.

But the major averages haven't been phased a bit. The S&P 500 and other large-cap indexes keep charging to new heights.

Yet when we look beneath the surface, we're hearing a different story… The vast majority of stocks have NOT been making new highs along with the averages. In fact, we’re beginning to see an expansion in new lows. 

This is a new development that's commanding our attention right now, mainly because these are the weakest conditions we’ve seen many of our breadth measures since last year. 

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

You’re probably sick of hearing this but it’s important! Even with the recent bout of volatility, new lows have been non-existent across most of the major averages in the US.

To be fair, many of our Intermarket relationships are still flashing red, suggesting continued headwinds for risk assets. 

Earlier this week we saw significant selling pressure in equity markets both domestically and abroad. Conditions are as ripe as they’ve been in more than a year for the bears. 

So, did we finally get that “fall day,” as our fellow Technician and friend Mike Hurley likes to call it?

The simple answer is no...

To us, the recent readings from our breadth indicators are no different from similar pullbacks over the past 18 months and not what a significant market top would look like.

But we always need to remember that like anything else, analyzing internals is a process. 

With this in mind, let’s check in on the 21-day lows for all S&P market cap sizes:

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

One of the main themes we discussed in the Q3 Playbook we published last week is the lack of any directional bias for equities on a relative basis.

We’ve been obnoxious about the trendless environment for equities on an absolute basis... and now we’re noticing a lot of the same play out in many of the relative trends we monitor.

When there is no edge on absolute terms, we can at least try and generate alpha by taking advantage of relative trends through pair trades.

But, right now there’s really nothing out there giving us an opportunity to do so. This is about as rough of an environment for money managers as you’ll find.

All we see is sideways, sloppy, range-bound action… Standard year-two stuff!

To illustrate what we mean, let's take a look at each large-cap sector SPDR relative to the S&P.

We'll start with the “growthy” sectors.

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

It's a tale of two markets. 

The weight of the evidence remains mixed across asset classes. We also continue to see more and more risk assets struggle at overhead supply. This is particularly true for equity and commodity markets.

From an intermarket perspective, most risk appetite ratios and risk-on relative trends are either moving lower or are rangebound.

Simply put, there's little in terms of directional edge for investors. The data remains split right down the middle -- and there are sound arguments for both the bull and bear case.

Although the information we're getting from the Bond Market is much more consistent these days. And what we're seeing is suggesting lower yields for longer.

Let's take a look... 

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

Several weeks back, we discussed the fact that new lows were non-existent across just about all of the major averages in the US.

It’s pretty hard for a market of stocks to decline in any meaningful way without an expansion in downside participation. And we just aren't seeing any signs of this when looking through our breadth chartbooks and new low indicators - not even on shorter timeframes. This remains the case today.

We've been pounding the table on our view that this is nothing but a messy market, as well as the fact that many significant risk assets are chopping around key resistance levels.

So you would think this would be an excellent opportunity for the bears to take control… But, they just can't seem to get it done! Let's dive into some of our breadth and sentiment indicators and see what they're currently saying about this.

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

Thanks to everyone who participated in last week’s mystery chart.

We asked whether the chart could make a decisive upside resolution out of its consolidation pattern, or if this level will continue to act as resistance and keep a cap on prices.

The responses were mixed, with many wanting to wait for more information. In many cases, people were looking for confirmation of a breakout.

The chart was a daily candlestick view of the iShares Semiconductor Index ETF $SOXX.

Not much has changed since we first posted the chart. In fact, price has yet to make a decisive move from this key level. Let's dive in and see what's happening and where it's likely headed.