Sector Scopes Monthly Update May 2024 & Silver Continuous Contract (SI.F)

It’s an odd feeling that for a week that saw the Dow Industrials reach 40,000 for the first time, and the S&P 500 plus the NASDAQ hitting new all-time highs, while at the same time cryptocurrencies have been soaring, there doesn’t seem to be much in the way of celebration. Perhaps because markets have been climbing pretty much non-stop for the last six months, some investors may be starting to get tired, this could explain why right after the big milestone was achieved, US indices levelled off and then started to retreat. Over the last month, every major country ETF we track is up but in the last week, nearly every major country outside of North America is down. The US and Canada were flat over the last week despite all of the breakouts and records.

So far this pause appears to be a rest stop within an ongoing uptrend, but sector action suggests the potential for a deeper correction. Although 10 of the 11 main sectors are up over the last month, 9 of the 11 have gone down in the last week, with only Technology and Utilities still clinging to small gains over the last few days. A conga line of neutral to hawkish Fed speakers over the last week has started to push treasury yields upward once again, so it comes as no surprise that interest rate sensitive Real Estate has been the worst performing group of the last week, along with Consumer Discretionary following a series of disappointing earnings reports from retailers.

In addition to disappointing earnings and/or guidance from retailers, it also has been a tough week for the housing sector as a number of key monthly housing market indicators have dropped and disappointed significantly. The coming week brings us to the end of the month with a focus on early PMI reports, including today’s flash numbers, inflation reports from the US, Europe, and Canada, and North American GDP updates. Canadian bank earnings season kicks off today with TD Bank the first out of the blocks, while the remainder of the big banks scheduled to report next week. Commentary on lending conditions in Canada and the US may be of interest. It was another good quarter for stock markets so expectations for Investment Banking, Trading and Wealth Management operations may be higher. In the US, earnings reports are mainly focused in the retailing and consumer technology areas.

In this edition of Equity Leaders Weekly, we take our monthly look at relative strength across sectors and at the significance of the recent Silver rally.

The Sector Scopes feature in SIA Charts, found in the Markets – BPI section, gives subscribers a visual snapshot of the Bullish Percent (percentage of stocks in the sector on a bullish signal) for 31 industry groups. This provides insight into which sectors are attracting capital, at a given point in time and also illustrates how capital flows and investor sentiment change over time.

The majority of groups are currently clustered in the center-right of the bullish percent spectrum, with a few pushing to the right edge, only a small number of groups in the center-left, and none at the extreme left. This is indicative of bullish but not overbought market conditions generally.Looking at the relative placement of the groups tells a different tale, however. The right-hand side groups with the highest relative performance are a combination of late stage leaders like Electronics & Semiconductors and Metals & Mining, and defensive groups like Tobacco, Utilities and Food, which suggests the while some investors remain bullish, others have taken a more defensive stance. The groups on the left, particularly Retail, Specialty Retail, Automotive and Consumer Durables suggest that a slowdown in consumer spending may be underway and becoming a broader concern.

While the recent rally in Gold to new all-time highs has attracted a lot of attention from investors, other precious metals, including Silver and Platinum, have also been climbing. This can be seen as a sign of growing concern among investors about political risk, the health of the world economy, national balance sheets, the stability of currencies and the state of the global banking system.

This 25-year chart of the price of Silver (SI.F) highlights the importance of its recent rally. From 2009-2011, Silver soared from below $10.00/oz up toward $50.00/oz, then gave back most of those gains in a downtrend that ran through to the 2020 low. In 2020, Silver staged an initial recovery rally then levelled off and trended sideways for several years. In late 2022, Silver established higher support near $17.50/oz and since then, it has been under accumulation, rallying then pausing around $25.00.

This month accumulation in Silver has accelerated significantly. The metal price completed a Spread Triple Top pattern with a breakout over $27.20 and is has not looked back since, breaking through $30.60 to trade at its highest level since 2014...literally ten years.

Previous X column highs suggest potential upside resistance tests on trend appear near $37.25, then $43.55 and $49.00. Initial support appears in the $26.15 to $27.20 area where a 3-box reversal and a retest of a recent breakout point converge.