To be blunt, this market is ripping higher!
We’re seeing a lot of new highs. In fact, we saw more new highs in November on both the New York Stock Exchange and the Nasdaq than we’ve seen since early 2018 – the former peak for risk on assets across the globe.
Back in January and February, we were seeing new highs in the S&P 500 – BUT, we were also seeing deterioration in breadth. In other words, less participation from stocks. This means fewer stocks hitting new highs – to confirm the new highs in the S&P 500. And that didn’t end well for stocks.
That was then. Today, we’re seeing an expansion of breadth. We’re seeing more participation, not less.
And it’s not just here in the United States, more countries are breaking out to new highs. Let me spell it out – these are all characteristics of bull markets and uptrends, not bear markets and downtrends.
Stocks as an asset class are in a strong uptrend. It’s undeniable. And when stocks are outperforming on an absolute basis, they’re usually outperforming on a relative basis too.
Just take a look at these inter-market relationships comparing the relative strength of stocks to their major alternatives, bonds and commodities. This is called inter-market confirmation.
With stocks outperforming bonds on a relative basis: QQQ vs.TLT (stocks vs. Bonds/ growth assets vs. defensive assets)
And stocks outperforming Gold: QQQ vs. GLD (stocks vs. precious metals)
What does all mean to investors? It means that stocks – risk on assets are on the rise…
In other words, we’re not seeing the defensive asset classes being bid up by the big institutional players. Stocks are being bought, not sold. Institutions are accumulating stock, they are not buying bonds, they are not buying Gold.
We are seeing more and more stocks, sectors, and countries making new highs.
Possibly the most telling chart that I came across this weekend was the The Global Dow Index, breaking out of a multi-year base to new all-time highs.
What we’re looking at are stocks from around the world: United Kingdom, Japan, United States, Germany, France, China – and the Global Dow is breaking out to new all-time highs.
Recall that risk assets around the world peaked in January of 2018. And it’s taken almost 3 years for demand to be able to absorb all of this overhead supply and breakout to new all-time highs.
Maybe it’s too soon to declare victory, and claim we’re in the beginning of a new bull cycle – but a breakout above the 2018 highs is a very positive development and something we’ll be keeping an eye on.
And think about this, almost 20% of The Global Dow is made up of Financials. And here in the U.S. Financials are still below their 2007 all-time highs – so they have yet to participate in a meaningful way. If Financials can get going and form a constructive breakout, that will only reinforce the strength we’re seeing in stocks across the globe.
Financials (XLF) still below former highs:
And as of this writing, Broker Dealers and Exchanges (part of the Financial sector) is making some noise – is the move in Broker Dealers and Exchanges going to kick start the rest of the sector? Well, we don’t know yet.
So check back next week as we keep an eye on Financials, Global Equities and a few very important inter-market relationships that matter the most.
Until next week, Invest wisely.
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