Relative strength charts are a great tool to identify where the big money is flowing into and out of.

Today, we're looking at a chart that suggests one sector is getting ready to outperform the broader market again.

From the desk of Steve Strazza @Sstrazza

We’ve written extensively about the split market we’ve been in for the better part of the year, as the same leaders coming into the Q1 crash emerged as the strongest areas coming out of it. Over the past 3-4 weeks we’ve seen some major mean reversion and much-needed participation from the cyclical sectors which have been lagging for years now.

This is constructive rotation and a major positive for bulls as we’re going to need to see this type of breadth expansion if this rally is to have legs.

While this is an encouraging development, there’s one thing that hasn’t changed at all. With all the focus on Financials, Industrials and Energy recently, Tech seems to have been forgotten a bit, but it’s still by far the best game in town.

The Nifty Pharma sector has been a favorite of ours since last November, with many trade ideas popping up along the way.

Today, we're doing a deep dive into the sector to identify the strongest names that we'd want to be buying on any weakness that may be created by the Nifty 50 and other major indices reaching overhead supply.

From the desks of Steve Strazza @Sstrazza and Tom Bruni @BruniCharting

In this post, we're going to share 10 of the most important charts we're looking at right now. Some are merely for observational purposes or to highlight some of the broader trends at play in the markets while others are trade ideas in some of our favorite names and areas.

Let's dive right in. Here they are.

One of our "Five Bull Market Barometers" is the Nifty 100/Nifty Small-Cap 100 ratio due to its importance as a measure of risk appetite.

Today, we want to look at a more concentrated version of this ratio, the Nifty 50/Nifty Small-Cap 100, which is a major inflection point.

Let's discuss what's happening and why it's important to our broader view on Equities as an asset class.

From the desk of Steve Strazza @Sstrazza

For the week ended Friday, June 5, 2020:

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

This was a big week for market bulls as a myriad of consolidations resolved to the upside while the powerhouse Nasdaq 100 $QQQ finally became the first major index to reclaim its all-time highs. The only assets to post negative returns this week were the usual "safe-havens" such as Treasuries, Yen, and Precious Metals. Everything else was green. How's that for improving risk-appetite?

In this post, we'll highlight that this broadening participation and flight towards risk-assets is more than just a one-week phenomenon. We've seen this type of price behavior in some asset classes for over a month now.

In early May we outlined the "Five Bull Market Barometers" we're watching to identify the beginning of a new bull market in stocks.

If you haven't read our initial post linked above, we'd encourage you to check it out so you understand what the rationale behind these five indicators is.

It's also worth pointing out that last week we noted that despite the slight improvement in two of these measures, zero of the five were above their key risk levels. Despite that, the market was telling us that the short-term momentum remained to the upside and our long ideas were working well.

After a couple of strong weeks in the market, let's take a look and see how these longer-term indicators have fared.

From the desk of Steve Strazza @Sstrazza

In recent weeks, we've witnessed a powerful rotation as many of the secular laggards have assumed short-term leadership positions.

In today's post, we're going to take a stab at using a new visualization tool in order to illustrate this recent changing of the guard.

This scatter plot is comparing the maximum drawdown from 52-week highs to the March lows (Y-Axis) with the short-term performance off of the May 13th low, among all of the 150+ Dow Jones Industry Indexes. The plot-sizes are based on how large the current drawdown is... In other words, the bigger the dot, the bigger the drop.

This is a market of stocks, and not just a "stock market".

All of these Indexes, from the Dow Jones Industrial Average to the Russell2000 Small-caps, are made up of components. There are 30 stocks in the Dow and 2000 stocks in the Russell2K, for example.

Are more of them going up? Are more of them making new highs? Are more of them showing bullish momentum characteristics? Are fewer and fewer components doing these things as the indexes make new highs? What about in downtrends? Are more stocks confirming the new lows in the indexes or are fewer and fewer stocks making new lows and showing bearish momentum characteristics as the market makes new lows?

The answers to these types of questions is what we call, "Market Breadth Analysis". There are a lot of ways to do this on all sorts of different time horizons. In this lesson we go over all the methods we use to decipher market breadth, which can be used by both individual traders and the largest financial institutions in the world.

This explanation is taken directly from Lesson 4 from the NEW Allstarcharts Charting School:

We've been writing about how the momentum is to the upside for the last few weeks, but now prices are testing overhead supply across all the major Nifty indices.

If you haven't read our last few posts we'd highly encourage it, as they outlined our shorter-term views within the context of the long-term trends.

If you're all caught up, then let's take a look at the levels we're watching in the Nifty 50 and other indices.

Here's the Nifty 50 running into overhead supply near 10,000. Momentum failed to reach overbought territory despite the more than 35% rally since the index's March lows.

Click on chart to enlarge view.

From the desk of Steve Strazza @Sstrazza

Thanks to everyone for participating in this week's Mystery Chart. It was a bit of a layup, as most of you were bullish, recognizing the powerful failed breakdown and follow-through back above critical former support.

We would agree and like this chart for a counter-trend move right now as well. But the reason we chose it was really for informational purposes, as we are seeing continuation patterns resolve higher all over the globe right now.

The more of these patterns that resolve to the upside, the stronger the weight of the evidence builds in favor of other consolidations working themselves out higher as well. We are seeing this across all areas of Domestic and International Equity Markets, many of which we'll highlight in this post.