The broader markets are starting to show signs that we may be setting up for some sideways-to-down chop.

And one sector that is likely giving investors fits is the financials. During this recent "recovery," $XLF has continually been underperforming relative to the S&P. JC shared this chart today highlighting this observation:

With Financials, arguably America's most important sector, making lower lows relative to the rest of the market, it's hard to see them emerge as new leaders. New decade+ relative lows in $XLF is not what you want to see if you think the stock market is going a lot higher. It's actually the opposite.

I look at Regional Banks and wonder, Is this a major bottom? Or is this just a normal consolidation within an ongoing trend? So then I look at momentum in a bearish regime, and its parent sector, Financials, breaking down to the lowest levels relative to the S&P500 since March of 2009:

From the desk of Steve Strazza @Sstrazza

New Mystery Chart!

For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!

We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.

You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?

From the desk of Steve Strazza @Sstrazza

Gold (GLD) broke out of a multi-year base last year and has more or less been trending higher since. No new news there.

But as JC explained in a post last week, Gold Miners (GDX) have finally broken out of a 7-year base as well after recently taking out resistance at key prior highs.

Today we're going to take a deeper look at the space.

We love setups like the one in Gold Miners right now. Not only did GDX resolve higher from a massive base but there is also a hefty amount of price memory at the breakout level which should act as solid support going forward.

Click on chart to enlarge image.

Jeff deGraaf is one of those analysts who influenced me very early on. Something I've always admired about him is how much emphasis he puts on first identifying what type of market environment we're in, before then giving more or less weight to different tools and indicators. This is one of those important steps that I think gets forgotten quite often when you see investors trying to always incorporate a certain strategy or approach regardless of the environment. In this episode, Jeff compares this stock market crash, and subsequent recovery, to others in the past including 1987. He does a nice job of incorporating what is currently taking place in Bonds and Gold into his analysis for stocks. I think there are a lot of great lessons in this conversation with, who I believe, is one of the best Technical Analysts in the world today.

From the desk of Steve Strazza @Sstrazza

For the week ended Friday, May 1, 2020:

Every weekend we publish performance tables for a variety of different asset classes and categories along with commentary on each.

This week we're highlighting the underperformance from the US using our Global Index and International ETF tables.

Click table to enlarge view.

Despite the Wilshire 5000 (DWC) closing slightly higher on the week, all major Large-Cap averages in the US closed lower. While equities sold off across the board to end the week, the Eurozone still managed to book a nice gain with the German Dax (DAXX) and Stoxx 50 (STOXX) up 4-5% each in what was a short week for much of the region.

The Nikkei 225 (NI) and Shanghai Composite (SSEC) each closed almost 2% higher in what was also a short week for much of Asia.

Weekends are a great time to take a step back and rip through thousands of charts to see what's really going on. The S&P500, Dow and all those other indexes can only provide so much information. At a certain point, you need to get your hands dirty and a really look under the hood.

This weekend was especially informative because we got new Monthly Charts on Thursday and new Weekly Charts on Friday. That's like Christmas for me.

Today I want to go over a few of the most important charts we want to keep an eye on going into the "Sell in May and Go Away" period.

From the desk of Steve Strazza @Sstrazza

Now that April is in the books that old Wall Street adage of “Sell in May and Go Away” is making its annual tour around the world of financial media. The reason this is such a commonly rehearsed phrase this time of year is that it was one of many seasonality trends first introduced by Yale Hirsch in his book, The Stock Traders Almanac.

The theory is rooted in historical research which shows that stocks tend to experience their worst performance between the months of May and October. Alternatively, the best months of the year typically occur between November and April, which is what we're going to cover in this post.

Notice how significant the disparity in average return is between these two six month timeframes.

As May gets under way, it’s time to review positions with May options that remain open (haven’t already hit profit targets or been stopped out).

Most trades I put on for All Star Options tend to have a minimum duration of 30 days (short premium plays) and often as long as 6-8 months (for long premium plays). As options approach expiration, greeks like theta and gamma start to become my enemy and whipsaw my P/L. Therefore, as options and spreads get into the expiration month, my best practice is to put each position on notice — it’s time to take action.

The best part about the end of the month is that there's always a fresh batch of Monthly Charts waiting for us. We only perform this exercise once the candlesticks are completed, which in this case was Thursday April 30th. It takes me about half an hour to get through them all, which represents roughly 6 hours of my entire year's work. I promise you from the bottom of my heart that there is no single part of my entire process that I find more helpful than this monthly chart review.

You see, this process forces us to take a step back, and gives us no choice but to identify the direction of the primary trends. We use these to put shorter-term trends into context. So no matter what your timeframe is, I think first identifying primary trends, and then working our way down from there, is a huge advantage over a blind bottoms/up approach.

Here are the things that stood out most during my review:

From the desk of Steve Strazza @Sstrazza

There has been a lot of chatter about the outperformance from Health Care recently. One of the industry groups benefitting from this strength has certainly been Biotechs so we're going to dive into that space today and take a look under the hood.

This week's Mystery Chart is a long-term ratio chart of the Nasdaq Biotech ETF (IBB) relative to the Nasdaq 100 (QQQ). Thanks to everyone for participating. Responses were pretty mixed this week as the chart is at a bit of an inflection point as it tries to hammer out a bottom at key prior lows from 2007-08 and 2011.

Gold bugs sure have a lot to chirp about these days with theoretically unlimited money printing happening here in the US and around the world.

And this chart showing the performance of Gold relative to the S&P 500 shows a definitive upward trend in favor of Gold outperformance.

The million dollar question is, is this gold outperformance waning here? Or will the trend reassert itself soon?