I’ve been talking a lot recently about how I spent the better part of the last month traveling around Europe, meeting with customers, colleagues, and friends, and giving a few presentations. It’s easy for me to get up in front of a crowd and talk about the charts that I’ve been staring at every day for the past decade. I can practically draw them for you at this point…
But where I really win is in meetings with investors and traders from completely different cultures both before and after events. I was in Athens, London, Paris, Amsterdam, and Dublin. So there were a lot of people I had the opportunity to talk with and learn from.
That’s the point of all this, right? If we’re not going out of our way to learn – so that we can find more opportunities for bigger gains – what are we even doing?
Anyway, I’ve been so excited about some of these experiences that I had to talk about it when I got back. So, I sat down with my options man Sean McLaughlin for Technical Analysis Radio. Click here to listen!
Stock Market Highs
There’s been a lot going on with the markets back home, too, and my colleague Tom Bruni has been tracking things. Here’s what he has to say about the current conditions.
The good news is the S&P 500 and several other large-cap U.S. indexes are back at all-time highs. The bad news is that there remains a lack of confirmation from breadth and momentum readings around the world.
Needless to say, it was easier to be buying stocks last month than it is today, but let’s avoid getting into the weeds. Let’s simply look at the number of markets around the world above their 2018 highs.
Below is a table of the global equity markets we track prices in their local currencies. While there are performance stats from several key inflection points like the January 2018 and September 2019 uptrend in the S&P 500 (as well as its bottom on December 24), we want to focus on the left-most, “Change From 2018 Highs.”
This compares the market prices now to where they were at their highest point in 2018, or in other words, it gives us an idea of what the trend is.
Currently, the median stock market in the world is 6.22% off its 2018 uptrend.
A “Pause-itive” Development
An uptrend is a series of higher highs and higher lows, right? So if we see an expansion in the number of markets above their 2018 highs, that must mean there is an expansion in the number of uptrends occurring.
Unfortunately, that’s not what we’ve seen yet. Only 20% of these markets are above their 2018 highs despite six full months of aggressively rallying off their Q4 2018 lows.
So what could potentially change this weak breadth data?
Time, and time alone. You’ve got to take a pause.
A pause to digest gains and allow current leaders to reset and money to rotate into some of the laggards would be extremely constructive in our opinion. Weaker Dollar and rotation into Emerging Markets, Commodities, etc. would all be supportive of Equities as an asset class.
The longer we hang out up here and the more times we test these all-time stock market highs, the higher the likelihood we ultimately break out and begin the next leg of this secular bull…even if we get there one market at a time.
For now, though, these are the conditions we’ve got to work with. Luckily there are plenty of other things moving, like the U.S. Dollar and Gold, that are offering opportunities while Equities figure themselves out.