From the desk of Tom Bruni @BruniCharting

This post is a follow-on to this week's "Chart of The Week" which covers the recent breakout in Gold.

Here we'll take a macro look at the Precious Metals space, update our thesis, and outline the best ways to take advantage of it.

Despite our cautious outlook for Equities, there's one stock setting up for a potential short squeeze...and the skewed reward/risk has gotten our attention.

Let's take a look.

We've been outlining our thesis for weakness in Indian Equities for over a month now, but that was a tactical call within the context of bullish longer-term picture.

Unfortunately, with the last week or two of action, we've seen an expansion of stocks participating to the downside which suggests this near-term weakness could continue for the rest of the fourth quarter. Rather than the weakest stocks catching up to the leaders, the leaders are now catching down to the weakest names.

Let's take a look.

We've been outlining our thesis for a choppy environment in stocks both in India and globally for several weeks now and evidence continues to build that the market agrees with us.

With weakness in the broader market, sectors and individual stocks that have not participated remain at risk to lead to the downside.

Today we're looking at the Auto sector, which looks vulnerable to a swift 10% move to the downside if support at its multi-month lows breaks.

It's been a while since we've had a conversation about new all-time lows for stocks. But this week we saw the Regional Bank Index Fund close at new all-time relative lows. This is the lowest they've ever been.

What's fascinating is how this is happening just as the Financials Index Fund is attempting to break out to new all-time highs, finally exceeding their 2007 peak before the financial crisis.

Here in this chart you can see the $XLF trying to finally get through those 2007 highs for the first time ever. But Regional Banks are not confirming these new highs. Neither is Momentum or Relative Strength.

Over the past month, Bonds are up a bunch as the collapse in Interest Rates has resumed. We jumped on board this bond trade last month and so far it's working.

Meanwhile, a majority of U.S. stocks are actually down over the past month. While the S&P500, Dow Industrials and Nasdaq100 have gone on to make new highs, the NYSE Advance-Decline line (stocks only) did not, Small-caps did not, Dow Transports did not, and a majority of individual stocks did not. It's only a minority of names doing the work, particularly large-cap stocks and some higher dividend paying areas like REITs and Utilities.

When you run the numbers, most stocks in the U.S. are down over the past month, with negative average and median returns for the Russell3000 components. It's the bonds that are up and I think they're just getting started.

As you guys know, we've had a much more defensive approach to the stock market over the past few weeks, especially compared to how bullish we had been for so long. There is a time to be big and aggressive and a time to be small and cash heavy. I believe we're currently in the latter of those two categories.

Here's the clip in full:

From the desk of Steve Strazza @Sstrazza

Thank you to everyone who responded to this week’s mystery chart.

There was a nice diversity of responses. Many said they were anticipating a break of the support line and would get short against that level while others were buyers as long as prices held above it. But the majority took a neutral approach, preferring to wait for the current range to resolve before having a directional bias.

A sound argument could be made for any of these answers in my opinion, so with that as our backdrop let’s take a look at this week’s chart.

We've been highlighting the relative strength of certain Gas names in the Energy space since August, and they've worked wonders on the long side.

Although we've issued several tactical updates since then (December and January), I wanted to use today as an opportunity to revisit this thesis and update our approach given many of our price objectives have been hit.

The Fast Moving Consumer Goods Index continues to chop around, but there remains an opportunity in many individual index components on the long side (while avoiding the weak ones).

There is a lot going on in the market right now, not just in the U.S. but globally. The intermarket relationships between Bonds, Gold and the US Dollar are having a major impact on equities.

January is a month that gives us a lot more information than most other months throughout the year. We have the data now that we can use to help us identify primary trends.

Volatility is picking up. Daily swings are getting larger. I’ve seen this story before.

We discuss all of this and a lot more.

This is the video recording of the February 2020 Conference Call.

*NOTE: This Post and Video was originally intended for Premium Members of Allstarcharts Only. But due to the circumstances, we have unlocked it for everyone to watch and download the slides. We feel this can be used for educational purposes moving forward. Thank you for understanding.