By Adam Koós, CMT, CFP®, CEPA

Investopedia is partnering with CMT Association on this newsletter. The contents of this newsletter are for inforWe’ve already gone over a lot this week, but most of the focus has been on whether the market is healthy or not.  If you want to “catch up” on the installments you missed, here they are:

Monday: Government Shutdowns and Market Health

Tuesday: Digging Deeper into the Health of the Stock Market

Wednesday: More “Healthy” Evidence and Emerging Stocks

Alright, now that we’ve established that the market is looking pretty healthy, let’s talk about how to drill down and determine where the strength is… or in other words, what might we consider owning in our retirement and investment portfolios?

While the “buzz” has died down a bit, there was a lot of discussion earlier this year about the viability of adding exposure to international stocks. 

I know it might sound difficult to believe, but truth be told, the U.S. stock market has been largely dominant (vs. the rest of the world) since 2008. 

I’m only showing you the relative strength (RS) chart (below) for 2020 – present day… but if you create your own chart comparing U.S. stocks to international (ex-U.S.), you’ll find that there have been snapshots in time when stocks overseas tried to reverse this long-standing pattern you see below, but each attempted reversal is short-lived.

So just like Tuesday’s issue, when I showed RS charts comparing Tech vs. Utilities and “Wants” vs. “Needs,” (and if you missed it, you can check it out HERE), below is a similar RS chart, except I’m comparing the strength between U.S. and International stocks.

As before, if the chart is trending up, U.S. stocks are in favor.  If it’s trending down, international stocks is the stronger of the two asset classes… and as you can see below, the latter of the two has managed to find some air and muster up strength every winter before being suffocated by stocks in the U.S. once again, and today, the trend is flat (or “trendless”).

NLet’s move outside the stock market altogether and compare U.S. stocks to commodities, which are investments such as:

• Energy: Crude oil, gasoline, coal, heating oil, natural gas, etc.
• Precious Metals: Gold, silver, platinum, palladium, etc.
• Agricultural: Corn, wheat, soybeans, oats, etc.
• Softs: Coffee, cocoa, sugar, cotton, orange juice, etc.
• Livestock: Live cattle, feeder cattle, lean hogs, etc.

Apart from precious metals, feeder cattle, live cattle, and coffee, the commodities market has done “okay,” but as you can see below, the U.S. stock market still takes home the RS trophy at the end of the day.

Furthermore, while there was initially a couple head-fakes, the RS relationship officially broke out in favor of U.S. stocks this summer (red dashed line), and that trend seems to be continuing into the fall months.

I already shared some of the top U.S. sectors in yesterday’s installment of Investopedia’s Chart Advisor, but let’s drill down even further…

Below is a 26-week rate-of-change scan on an inventory of domestic ETFs, broken down by decile with a weekly chart at the right, and RSI (a momentum indicator) below the chart.

Allow your eyes to skim through the top-ranked sectors and you’ll start to find overlap and themes…

Metals & Mining: Think “precious metals”

Technology & Semiconductors: Think “A.I.”

Lithium & Solar: Think “hybrid, electric, and autonomous vehicles”

I saved the #1 ranked sub-sector for last on purpose, because Cannabis has had a rough time… for a long time! 

You can see in the chart below that not only has it managed to quickly move back above its descending 40-week moving average (i.e., 40-week trendline), but RSI managed to close above 70 for the first time in a long time, which is a piece of evidence that suggests potentially good times ahead for the sector.

Stay tuned for my last installment tomorrow, when we’ll dive one, last step deeper into more ETFs in the bond market, and we’ll even check out some individual stocks that have been trending in the right direction.

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Shared content and posted charts are intended to be used for informational and educational purposes only. CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. CMT Association does not accept liability for any financial loss or damage our audience may incur.

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