“For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay attention to the charts are like a doctor who says he’s not going to take a patient’s temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.” ~ Bruce Kovner
Good morning!
In this week’s Dirty Dozen [CHART PACK] we look again at the energy space, discuss another potential leg up in the reflation trade and small-caps following mids and large higher. We then dive into easing Trend Fragility, silver at big support, and ETHUSD winding up for another run, plus more…
Let’s dive in.
***click charts to enlarge***
- I’m leaning towards BofA’s interpretation of the below ratio charts. Thinking the reflation trade (energy, financials, industrials, and materials) are about to take back leadership soon.
- Crude saw the strong bounce our backtester said was likely last week after hitting short-term oversold conditions. Breadth in the equity space is also coming off bombed out conditions. These levels are usually good for a short-term bottom if not something more…
- The energy sector has the strongest clustering of MACD Buy Signals at the moment, with the other reflation sectors right behind it.
- Our new sector tab in our dashboard (aka. HUD) shows that even after the last 12-month run, the energy sector still trades near its cheapest valuation relative to its history and well below its peer group.
- Relfation names and small-caps have held up considerably well over the last few months despite the spread of the delta variant across most of the world, including the two largest economies (chart via BBG).
- But despite the rise in cases, most countries are easing restrictions, not adding them (chart via UBS).
- Small-caps have traded in a narrow sideways range year-to-date but we may finally be seeing the McClellan Summation Index give a proper Buy Signal this week.
- Trend Fragility has been high for weeks but it has eased up some recently following the choppy action in markets. Here’s a few of the inputs into our TF indicator which show they’re currently below levels that typically mark tops.
- Large caps are making new highs, mid caps are breaking out, and small-caps look like they could soon join the party. This Buy Climax should be fun…
- Silver is on my radar this week. It’s rebounding off a significant 12-month support level (chart below is a weekly). Net Spec positioning has eased up a good deal over the last few weeks and is now neutral. Roughly 80% of breakouts from trading ranges fail, so watch this one for some potential reversion in the weeks ahead.
- However, the setup isn’t my favorite seeing as how bears have been in firm control over the last two months. Our backtester shows that silver has a fairly strong bearish bias following three consecutive weekly bear bars both within a Bull Quiet regime and with no regime filter. Just something to keep in mind.
- ETHUSD is up roughly 50% since I said the bear move was over (link here). ETHUSD is now gearing up in a major compression zone, building energy for the next bull thrust higher. Which, I expect will happen soon…
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Thanks for reading.
Stay safe out there and keep your head on a swivel.
