From the desk of Tom Bruni @BruniCharting

Last week in our note to Institutional Clients we highlighted the potential for mean-reversion in the relative performance of Small and Micro-Caps, driven by rotation into Financials and Healthcare.

Below is a chart of the Micro-Cap Index (IWC) relative to the S&P 1500, confirming a failed breakdown and bullish momentum divergence. As long as prices are above 0.1405, this ratio looks ripe for some mean-reversion to the upside.

Click on chart to enlarge view.

Same goes for the Russell 2000 relative to the S&P 500, failing to hold its new marginal low as momentum diverges.

Here's the Russell 2000 breaking out of a 2 month long base on an absolute basis as well. For the first time in a while,...

From the desk of Tom Bruni @BruniCharting

While we wait to see whether or not this retest of all-time highs is a successful one, we want to define our risk on the long side in individual names that continue to lead the market higher.

One subsector that remains a consistent source of these setups is Software.

Below is a chart of Software relative to the Technology Sector overall, finding support right where it needed to at our previous price target. Whether prices can get back to their year-to-date highs will be an important tell, but for now the uptrend in this ratio remains strongly intact.

Click on chart to enlarge view.

One individual name that looks compelling at current levels is Coupa Software, which is breaking out of a 10-week base to new all-time highs. The stock could use a few days of consolidation before continuing higher, but from a risk management perspective we'd be buying a breakout above 103.25 and targeting 130.50 on the upside over the next 1-3 months.

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Interest Rates in the United States hit new 52-week lows last month. But from the looks of it, the commodities market and stock market are not in agreement with that direction. It's when we see divergences among asset classes that it gets my attention.

Today we're looking at the divergences between stocks, bonds and commodities that I believe are pointing to higher rates this quarter. If we're going to take the weight-of-the-evidence approach, it's 2 to 1 in favor of rising interest rates. 

A Doctor would never diagnose a patient without first seeing what's going on inside. A mechanic won't be able to tell you what's wrong with your car without lifting the hood. It's no different in the market. How can we possibly judge the S&P500 without opening it up first to see what's happening among its components.

Today we're going to focus on the sectors themselves. We're looking at weekly candlestick charts for all of the 11 major sectors:

• Technology
• Real Estate
• Energy
• Healthcare
• Financials
• Consumer Discretionary
• Consumer Staples
• Utilities
• Industrials
• Materials
• Communication Services

How many sectors are making new highs? How many are making new lows? Are more of them starting to trend higher or are more of them starting to trend lower. In which direction are consolidations resolving, higher or lower?

From the desk of Tom Bruni @BruniCharting

Wednesday's Mystery Chart is one of my favorite charts in the world.

First off, I want to thank everyone for your feedback and participation, as always. I received a lot of answers and most of you were buying the breakout along with me, while a few of you were looking for an "oops" to get short and fade it.

With that in mind, let's reveal the chart.

Many people are surprised that we are back to where things first fell apart for the S&P500 and Dow Jones Industrial Average last year. We had a severe correction in Q4, and now prices have climbed back to where this all got started. At this point, nothing surprises me anymore. Those who are still "shocked" by anything probably haven't been doing this very long....

The question we find ourselves asking this week is simple: Are these major US Stock Market Indexes going to fail up here, like they did in October, or will they break out and rip to levels never seen before?

From the desk of Tom Bruni @BruniCharting

I saw a couple tweets yesterday about FAANG stocks and their "lack of participation" in the market's four month rally and just don't get it.

First it was a problem when the largest stocks in the S&P 500 were leading. Now it's a problem that most aren't hitting all-time highs with the S&P 500.

From the desk of Tom Bruni @BruniCharting

New Mystery Chart!

For those new to the exercise, we take a chart of interest and eliminate the x and y-axes and and all labels eliminated to minimize bias. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. It can even be inverted or a custom index.

The point here is to not guess what it is, but instead to think about what you would do right now. Buy, Sell, or Do Nothing?

From the desk of Tom Bruni @BruniCharting

I just finished writing a free post for All Star Charts India following up on where we've been over the last two months and what this last week of price action means for Indian stocks in the near-term.

As I was writing up the post I noticed a lot of similarities between US Stocks today and where India was just a few weeks ago.

I'm going to summarize the key points, but I'd encourage you to read that post in full so you can really see what I'm talking about below.

Anyway, let's just jump into it.

What inflation?

This seems to be the talk of the town these days.

Interest rates all over the world made new lows last month and have since then tried to start a recovery. We're seeing this across the developed world in the U.S., Germany, UK and Japan, among others. Meanwhile, journalists at Bloomberg Business Week decided to put a dead dinosaur on the cover of the latest issue asking, "Is Inflation Dead?"

From the desk of Tom Bruni @BruniCharting

I received a ton of great responses via Twitter and email for this week's Mystery Chart, so thank you for that.

A lot of you were leaning towards the short side, with different approaches and stops. Some were neutral, but very few of you were leaning long.

From the desk of Tom Bruni @BruniCharting

New Mystery Chart!

For those new to the exercise, we take a chart of interest and eliminate the x and y-axes and and all labels eliminated to minimize bias. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. It can even be inverted or a custom index.

The point here is to not guess what it is, but instead to think about what you would do right now. Buy, Sell, or Do Nothing?