By J.C. Parets & All Star Charts
1/ Tech Underperforms
2/ The Median Stock Reaches a Critical Level
3/ Will Commodities Follow Energy’s Lead?
4/ Tracking Copper
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1/ Tech Underperforms
Technology stocks have halted their advance as they ran into resistance a few weeks ago.
Not only are we seeing corrective action on absolute terms, but on a relative basis, tech is slowing down versus the overall market.
The chart below of the Equal Weight Technology Sector (RSPT) vs. the Equal Weight S&P 500 (RSP) illustrates this theme:
As you can see, the RSPT/RSP ratio failed to break above a critical level of overhead supply as sellers showed up at a shelf of former highs.
A breakout above this resistance area would signify a new era of outperformance for tech.
However, if this ratio remains stuck in this range, we could see tech underperform and other areas of the market take the lead.
2/ The Median Stock Reaches a Critical Level
In healthy bull markets, stocks tend to outperform their alternatives.
We like to use ratio charts to determine which asset classes outperform and which are underperforming.
Check out the Value Line Geometric Index (VLG) vs. U.S. Treasuries (TLT) ratio pressing against the 2007 highs:
A decisive breakout from this monster base would indicate that the alpha will be in the stock market, favoring equities over their alternatives for the foreseeable future.
3/ Will Commodities Follow Energy’s Lead?
Energy contracts are breaking out.
Crude oil and gasoline futures are completing major reversal patterns. Heating oil is ripping higher. Natural gas has traders on the edge of their seats (what’s new?) as it heads into a seasonally favorable stretch.
But what about the rest of the commodity space?
Check out the overlay chart of our equal-weight energy index and our equal-weight broad commodity index:
Both averages have followed the same path since the 2020 lows despite a mere 15% weighting toward energy in our broad commodity index.
But energy is pulling away. Oil and gas names are taking on a leadership role among U.S. equities as their underlying commodities confirm by digging in and resolving higher.
If there was ever a time and place for the broader commodity complex to catch higher, this is it!
4/ Tracking Copper
If the commodity complex is catching higher along with crude and the gang, they’re not doing it without Dr. Copper.
Copper futures are a sweeping indication of global economic health and demand for base and industrial metals.
Check out copper stuck below a critical polarity zone:
If copper prices remain below this key level, it could raise questions about the resilience of the overall world economy and suggest a more difficult path higher for the broader commodities market.
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Originally posted 11th August 2023
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