The Market Mosaic 6.11.23
Breadth expansion can take stocks higher.
Welcome back to The Market Mosaic, where I gauge the stock market’s next move by looking at macro, technicals, and market internals. I’ll also highlight trade ideas using this analysis.
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And be sure to check out Mosaic Chart Alerts. It’s a midweek update covering chart setups among long and short ideas in the stock market, along with levels I’m watching.
Now for this week’s issue…
With the warm summer months officially upon us, I have upcoming travel plans with my family.
That means I won’t always have time for my usual Sunday post, but I still want to share what I’m watching…just in a more condensed format.
So instead of my normal distillation of the past week’s events impacting the economy and stock market outlook, I have a quick summary and links to recent posts that remain impactful for what happens next in the market.
First, the major takeaway this week is that the long awaited breadth expansion has finally arrived.
That’s showing up in multiple metrics, like with positive (and growing) net new 52-week highs.
We have a positive crossover in the McClellan Summation Index. I discussed this breadth metric here just recently.
And cyclical sectors are responding by ripping higher, like with the IWN small-cap value ETF below.
These are great signs that the rally is spreading beyond relatively few mega-cap growth stocks that were propping up indexes like the S&P 500.
The bad news is that investor sentiment is getting frothy, with CNN’s Fear & Greed Index hitting extreme greed territory.
I like to confirm CNN’s measure with the AAII survey of individual investors. Bears have outweighed bulls for some time now, but reversed in this week’s update. Bulls are now at their highest level for the past year.
While elevated levels of bullishness is a concern, I place more weight on sentiment as a contrarian signal when it’s accompanied by deteriorating breadth. And that’s not the case just yet.
Here are a few recent posts that are still impactful and relevant to the stock market’s next move:
I discuss three catalysts here that can keep the rally going strong.
Here’s why strong economic data and a Federal Reserve ready to pause can be the “Goldilocks” scenario for the stock market.
Watch these three sectors to know if the bank crisis is making a comeback.
Trade ideas I’m watching from my most recent Mosaic Chart Alerts post.
As I wrap up my weekly scans, here are a few extra trade ideas that I’m monitoring.
Great string of quarterly sales and earnings growth. Watching for a close over the $70 resistance level, which could lead to new highs.
If the dollar weakens and longer-dated yields keep falling, that should benefit gold prices. I’ve kept gold miners showing relative strength on my radar, including GFI that’s trading just below the $17 resistance level.
Biotech stock coming up on the $66 resistance level. Looking for volume expansion on a breakout and relative strength line to new highs.
That’s all for now. Next week will put the macro and monetary picture back in focus with a look at May’s Consumer Price Index and another rate-setting meeting with the Federal Reserve. Both events will deliver insights about the ability for the Goldilocks scenario to keep unfolding for the stock market.
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Disclaimer: these are not recommendations and just my thoughts and opinions…do your own due diligence! I may hold a position in the securities mentioned in this report.