To The Moon

There are two important issues here for investors to understand. $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$

First: the global cyclicals vs defensives relative performance line recently capped out at the top end of its trend channel — this is something that signaled 3 major market peaks over the past decade.

Hence, for the MSCI All Countries World Index (global equities), a red flag is clearly waving. So definitely step up your focus on risk management (take some time out to think about your plan, triggers, indicator set and framework).

Second… some of you might be thinking, hey hang on — wait a minute, didn’t you just last week go on about the upside in cyclicals??

Yes.

“Old Cyclicals“

See, the chart above uses the traditional cyclicals vs defensives classifications… so on the cyclicals side it is: Information Technology, Consumer Discretionary, Financials, Industrials, Materials, and on the defensives is: Consumer Staples, Healthcare, Utilities, Communication Services (formerly Telecoms). The Tech aspect has been boosting it (yes: overvalued and overhyped big tech).

The chart below shows the conventional or traditional definition of cyclicals vs defensives in the black, and the “Old Cyclicals“ (Financials, Industrials, Energy, Materials) relative performance in the blue line.

They are worlds apart.

The stretched move in traditional cyclicals vs defensives says more about the frothiness in tech than anything, but that only serves to cement the risk warning for tech-heavy market-cap-weighted stock indexes (while this chart also reminds us of the opportunity in Old Cyclicals).

Key point(s):  So there’s two takeaways this week, first is to be clear and thoughtful about what goes into the indicators you are tracking (e.g. “what do you mean, cyclicals?“), the second is to be mindful of the risk flag waving in global equities from the peak in conventional cyclicals vs defensives.

…and the third is to also highlight the gap (/opportunity) between “Old Cyclicals“ vs what everyone else looks at when they say Cyclicals.

https://entrylevel.topdowncharts.com/p/chart-of-the-week-the-trouble-with