Four Charts Worth Watching – All Star Charts –

From the Desk of Alfonso Depablos @AlfCharts

In today’s post, we’ll discuss the importance of four key indexes and what they can tell us about the future direction of the overall market.

All these groups provide an excellent overview of the current market environment and risk appetite. 

If you want to know where the broader market is headed, these are the charts to watch.

Here they are:

Let’s take it from the top.

First, Semiconductors $SMH, which fuel not just the tech sector but the broader global economy. This subgroup is also the largest weight in the S&P 500 these days.

Next is Homebuilders $XHB, which are considered among the most economically sensitive or procyclical groups. We’ve found these stocks to be an excellent gauge for global growth and risk appetite as well.

Then we have Broker-Dealers $XBD, which speak to us about the health of the capital market system, at large. Any sustained bull market should see buy-in from the most offensive financial stocks.

Lastly, the Industrial Sector $XLI, which has the highest correlation to major US averages throughout stock market history. It is also a very diverse and risk-on sector, making it a great indicator of broader market health.

Notice how all of these indexes broke out to new all-time highs in Q4 2023 and have sustained these moves through the corrective action of the last few weeks.

Long story short, you can’t be bearish stocks if these groups are above their 2021 highs.

The evidence is likely to skew heavily in favor of the bulls as long as these breakouts stick.

On the other hand, a failure at those previous highs would be a big red flag and warrant a more cautious approach.

However, based on the evidence we have today, we don’t think that is likely.

We hope you enjoyed this post. As always, please reach out with any questions.


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