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Strategies & Market Trends : Point and Figure Charting

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To: J.B.C. who wrote (34380)8/15/2022 12:40:19 PM
From: J.B.C.  Read Replies (1) of 34405
 
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Major domestic equity indices have risen sharply over the past few weeks, with the S&P 500 Index [SPX] rising over 10% over the last 30 days (through Thursday). This has seen many indicators point toward a risk-on posture and has caused some shifts in notable relative strength relationships. One of the classic RS relationships that we track is between SPX and our Money Market proxy [MNYMKT], which reversed back up into a column of X's on the 3.25% scale at the end of July. This chart moved lower into Os on February 23 and continued to fall through June. The upside participation in the core equity representative led the chart to reverse higher on July 29, and movement this Friday led the chart to add onto that movement with an additional X.

The continued improvement this week also led the S&P 500 to reverse back up into a column of X's on the 3.25% RS chart against the iShares US Core Bond ETF [AGG] following the movement on Thursday. This chart has seen a few reversals this year; it initially moved lower in March before reversing back into a column of Xs with the market rally at the end of that month. Keep in mind that the broad fixed income market was still experiencing enhanced weakness at that time. The chart then moved lower in May and fell to give a sell signal in June. However, the consistent rally in domestic equities has led SPX to reverse back up into a column of X's this week, adding to the improving relative strength picture for the core market benchmark.

It is important to keep in mind that investors with a broad equity focus are best served by not relying only on one RS chart or signal. Instead, consider how these RS changes shift the weight of the technical evidence for the name(s) you are examining. In this case, seeing the S&P 500 demonstrate RS improvement against the broad fixed income market confirms the prior strength demonstrated against cash and should be taken as a positive sign for further improvement.

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