We retired our "Five Bull Market Barometers" in mid-July last year to make room for a new weekly post that's focused on the three most important charts for the week ahead.

This is that post, so let's jump into this week's edition.

It's Saturday Morning Chartoons time. 

This is the weekly post that aggregates all the charts we put together throughout the week and organizes them all into one, easy to flip through deck.

This chart below tells a great story.

Want to know what's happening in the Stock Market? Here's a pretty good one that helps explain:

Remember, historically the S&P Industrials have the highest positive correlation with the S&P500, of all the Sectors. It's probably because it's so diversified: Airlines, Heavy Machinery, Human Resources, Railroads, Logistics Companies, Engineering, Trucks, Security & Alarm Services, Defense Companies and the list goes on.

It's no wonder that the correlations are so high. This sector is all over the place.

How this consolidations resolves is likely going to tell us a lot about the next direction for the S&P500.

Meanwhile, Emerging Markets fell to their lowest levels of 2021:

...

The buyers stepped up when they had to.

This could have been disaster for the Stock Market, but instead it's just more of the same: A Hot Hot Mess.

I think a great way to explain what happened this week is with the Equally-weighted S&P500. Remember, this version of the index is not heavily weighted towards those monster companies.

This index gives an equal weighting to each of the components:

From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley

It’s been a routine hurricane season down here so far this year. Things have picked up lately, and we’ve had a few close calls over the past week. 

But storms aren’t just brewing in the Atlantic...

It’s also beginning to look dicey in the commodities market, with lots of “close calls” these days.

Strong headwinds such as the rising dollar have hit some of the most important procyclical assets this week. Apparently, there’s some geopolitical stuff going on, too. Then again, when isn’t there? 

Let’s discuss what we’re seeing and try to determine just how likely these winds could evolve into a major storm for commodities.

Energy, base metals, precious metals, and ags have either pulled back from recent highs or have broken critical levels of support.

Given that many areas have experienced near parabolic advances during the past year, a corrective phase would be a healthy and welcome development. It makes total sense for commodities to digest their monster gains at current levels. And remember, sideways is always an option.

But headwinds have...

From the desk of Willie Delwiche.

On the heels of last week’s surprising drop in the University of Michigan Consumer Sentiment index, we are now seeing a similar decline in the Future Activity Index from the Philadelphia Fed. Just two months removed from a multi-decade high, this index has undercut its post-Covid lows and is now at its lowest level since late-2019. The 2-month decline is the largest in more than 50 years. Not only is current economic data falling short of expectations, but prospects for future growth are also being revised lower. This comes at a time when earnings expectations are still being pushed higher, valuations have swelled and investors remain all-in on equities.

The mostly sideways slide into autumn is continuing, which has kept me on the hunt for more delta-neutral credit spreads to take advantage of during these slow times.

I generally prefer to do these types of trades on sector or index ETFs. But occasionally, I'll take a flyer on a large cap name which isn't likely to suffer any serious price gaps (especially with no nearby earnings events on the horizon).

In the latest All Star Charts Monthly Conference call, the team mentioned a familiar name that is setting up for some continued sideways action that looks like a really good candidate for an Iron Condor trade.

 

This is the video recording of the August 19 Town Hall Meeting w/ Willie Delwiche

08/19/21 2PM ET

 

What are the things we look for most when trying to identify leadership?

First, it’s all relative. When the market is selling indiscriminately, this becomes more challenging. You’re literally looking for the assets that get hit the least. It's not until the volatility subsides that we start looking for those that rebound out of it the strongest.

In today’s post, we’ll use the recent selloff and rebound in crypto as a case study for how we pick winners out of a loser's market.

Here are two of our favorite ways to find future outperformers:

• Relative resilience during selling pressure.
• Relative momentum and strength - both into the peak and off the lows.

With the former, we can use tools like relative strength - or, rather, the absence of weakness - in addition to chart characteristics like bullish divergences and momentum not hitting oversold.

With the latter, we’re again looking at relative strength. Who were the biggest gainers since the market bottomed? Who are the first to take out their AVWAP from the highs and/or other key levels?

Which tokens are already...

From the desk of Steve Strazza @Sstrazza

Welcome to the 2 to 100 Club.

As many of you know, something we’ve been working on internally is using various bottoms-up tools and scans to complement our top-down approach. It's really been working for us!

One way we’re doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small-, to mid-, to large-, and, ultimately to mega-cap status (over $200B).

Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.

But the scan doesn’t just end there. We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.

Some of the best performers in recent decades – stocks like Priceline, Amazon, Netflix, and Salesforce, to myriad others – would have been on...

From the desk of Willie Delwiche.

Key takeaway:  There are signs of bears beginning to stir. Pessimism on the II and AAII surveys has reached its highest level since Q1 and put/call ratios show investors turning to the options markets for insurance rather than leverage. NASDAQ trading volume continues to unwind after surging to new highs earlier this year. This evidence of growing investor/consumer concern, especially when combined with deteriorating market internals and a disappointing macro backdrop, creates an environment ripe for a sentiment unwind. Whether a full unwind comes to fruition or not, rising pessimism tends to weigh heavy on equities after a period of extreme optimism.  

 

Sentiment Report Chart of the Week: Consumer Concern

Consumer views unexpectedly turned sour in the first half of August and the University of Michigan Sentiment index dropped to its lowest level in years. If this is evidence that bears are emerging from an...