By J.C. Parets & All Star Charts
Tuesday, 16th may, 2023
1/ Tech Stocks Take the Lead
2/ Retail Wreck
3/ Commodity Bulls Fall Out of the Rotation
4/ Copper Rolls Over
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1/ Tech Stocks Take the Lead
Technology has been a clear area of leadership over the past six months. Not only are tech stocks pushing against new highs in absolute terms, but the relative trends are reaching new heights as well.
Here’s the Large Cap Technology Sector SPDR (XLK) breaking out of a 15-month base relative to the S&P 500 (SPY):
After a prolonged period of sideways action, the XLK/SPY ratio is taking out its 2021 highs as it looks poised to resolve from its current range. The last time technology was trading at these levels versus the S&P was during the dotcom bubble in 2000.
If this breakout is a valid one, we could see further outperformance from tech and growth stocks in the coming weeks and months.
2/ Retail Wreck
The opposite is true when discussing retail stocks, as they have lost steam and leadership in the past two years.
Here’s a chart of the S&P Retail ETF (XRT) versus the S&P 500 (SPY) breaking down to new lows:
Earlier this month, the XRT/SPY ratio broke down from a consolidation to its lowest level since July 2020.
As long as this ratio is below its lows from last year, retail equities will likely remain a laggard group.
3/ Commodity Bulls Fall Out of the Rotation
Rotation is the lifeblood of any bull market, regardless of the asset class.
That’s why we were focused on a potential bearish-to-bullish reversal in base and industrial metals as energy contracts fell under increased selling pressure. With crude and gasoline trending lower, we were looking to see whether bulls would support a bid in other procyclical areas of the commodity space.
Fast forward a few months, and our base and industrial metals index is breaking down to fresh five-month lows.
Sellers are taking control of these markets. This does not bode well for the overall commodity space, as well as global risk assets.
If Doctor Copper and other industrial metals continue to move lower, global risk assets will likely experience renewed downside pressure.
4/ Copper Rolls Over
Why do investors and analysts closely monitor copper futures, referring to the commodity as Doctor Copper?
Check out the overlay chart of copper futures and the Global Dow ETF (GDOW)—an ETF of 100 diverse international blue-chip stocks:
Copper futures and global risk assets mirror each other over longer time frames. This is largely attributed to the strong relationship between copper’s supply and demand dynamics and global economic growth.
Regardless, the base metal has an incredible read on the global economy. And its recent breakdown suggests more downside risk in the coming weeks and months.
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Originally posted 16th May 2023
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