This week we're looking at two long setups this week. One in the Chemicals space and the second one in the Auto sector. While Chemicals have been among the gainers over the past few weeks, the Auto seems to be catching a bid off late.

We retired our "Five Bull Market Barometers" in mid-July to make room for a new weekly post that's focused on the three most important charts for the week ahead.

This is that post, so let's jump into this week's edition.

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

Gold has been one of the last places we have wanted to put our money over the past eight months, second only to Bonds.

Other areas of the commodities space, like Base Metals, Energy, and Ags, along with risk assets in general have experienced an explosive rally. While Precious Metals have gone nowhere. But are we starting to see signs that this could be changing?

Last week we pointed out that Lumber had reached our target and could be due for a pullback. And we’re seeing that play out.

The previous week we noted that other procyclical commodities within the Base Metals group were also reaching our targets and testing areas of potential resistance. And like Lumber and so many other risk-assets, they remain trapped below key levels of overhead supply.

So while much of these former leaders appear to...

From the desk of Willie Delwiche.

Every streak comes to an end. After a record 243 consecutive days of positive readings, the US economic surprise index slipped below the zero line this week. For a mean-reverting index that has historically spent as much time above zero as below zero, this was a remarkable stretch of better than expected data. While the data now is as strong as it has been at any point in the last year (in some cases, decades), expectations have now surpassed reality and so the surprise index is moving lower. This removes what had been a tailwind for equities and allows for a test of the resiliency of the current rally. Coupled with the tightening financial liquidity conditions and changing risk appetites,  this could make for a choppy summer in the stock market.

I'll be honest with you. I've been on cruises before. I don't think I have a need to ever do them again. I mean, the time spent "in port" was where the real fun for me was. Time trapped on the boat? Meh.

But, I know many people disagree with me and LOVE going on cruises.

I'm fine with that. Especially if it gives me an opportunity to make some money. And we've got one such opportunity on board!

It's always nice to sit down and talk about what the future is going to look like.

Currently, the largest hotel chain in the world doesn't own any hotels (Airbnb). The largest taxi cab company in the world doesn't own any taxi cabs (Uber).

Will the largest bank in the world not own any banks? Howard Lindzon says yes, "Banks aren't dead, they're walking dead".

This was fun. I learned a lot.

It gives me more reason to keep an eye on opportunities in the Crypto Markets.

I'm a chart guy, as you're all well aware. Price drives all of my decision making. But if you're interested in what's happening behind the scenes (I am), then this one is for you!

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Check out our latest Mystery Chart!

What we do here is take a chart that’s captured our attention, and remove the x and y-axes as well as any other labels that could help identify it.

This chart can be of any security, in any asset class, on any timeframe. Sometimes it’s an absolute price chart, other times it’s on a relative basis.

It might be a ratio, a custom index, or maybe the price is inverted. It could be all three!

The point is, when we aren’t able to recognize what’s in front of us, we put aside any biases we may have and scrutinize the price behavior objectively.

While you can try to guess the chart, the point is to make a decision…

So let us know what it is… Buy, Sell, or Do Nothing?

The market has been messy for a while and we've been reiterating that point for some time now. There are no new signals in terms of a direction, but we thought this is a good time to look at our risk metrics.

When we go through the metrics, we are essentially trying to put them in three buckets. Positive, Negative, and Neutral. Going by the weight of the evidence, we decide which way to go. Leave it all to the charts, they're your map for this treasure hunt.

There are several different metrics that we track on a global and a local level. The goal is to identify whether we are risk-on, risk-off, or waiting. This translates to how liquid one's portfolio could be at a given point.

Index view:

First up, let's take a look at what Nifty 50 is up to. We can see that since February this year, the market has been consolidating. This move has been limited between 15,470 and 14,250. What we also noticed early on was the divergence in the indicator. Momentum was losing steam despite price making new highs. That acts as an early signal of a possible change in momentum. Keep in mind, it is not the sole signal to track.

The...

From the desk of Louis Sykes @haumicharts and Steve Strazza @sstrazza

The Crypto space just experienced its worst day since the height of the Covid crash.

Bitcoin was down over 30% on an intraday basis, while Ethereum was almost cut in half.

We see this recent action aligning Crypto with what's taking place throughout the market. Bulls have had a more challenging time in recent months, and risk assets are coming under increasing pressure. 

Speaking to this topic, here's what we outlined in a note earlier this week:

One more chart that I think is interesting is the Bitcoin / Gold ratio hitting it’s upside objective and reversing hard.

How many people are telling you to sell Bitcoin to buy Gold?

I don’t hear any at all….

If we’re below 36:1 in the ratio between Bitcoin and Gold, then we prefer Gold.

Of course, we had no idea a 30%...

From the desk of Steve Strazza @Sstrazza and Grant Hawkridge @GrantHawkridge

In recent months, we've seen a rare bid in defensive assets as investors position for more mixed markets and messy action in the weeks and months ahead.

These defensive areas of the market have stopped trending lower on relative terms and many are rebounding off of very logical support levels... Gold Miners and Bonds are two examples of safe-haven assets that we recently got involved with on the long side in order to express this view.

Now add the following developments to the mix:

• A growing number of risk assets are hitting our upside objectives or running into logical levels of overhead supply
• Intermarket indicators are becoming increasingly mixed and some are even signaling a bearish shift in investor risk appetite
• Sentiment is running hot
• ...

This is the video recording of the May 20th Town Hall Meeting w/ Willie Delwiche

05/20/21 2PM ET

From the desk of Steve Strazza @sstrazza

As the market has become increasingly mixed, it's time to switch up our strategy a bit.

As we outlined in our post yesterday, for the first time in about a year, we are shorting stocks.

But this statement requires an asterisk...

We are shorting some stocks. And at the same time, we're still buying the leaders as plenty of stocks continue to show impressive strength -- particularly those with cyclical or value characteristics. That's where we're focusing for long ideas.

As for shorts, it's all growth. That is where the weakness is. We're not only seeing deterioration and relative weakness at the index level for growth stocks -- the internals are also deteriorating beneath the surface.

This is simply a tale of two markets. As growth-heavy averages like the Nasdaq roll over, the leadership areas are registering bullish breadth thrusts and carrying on higher like business as usual.

Does one of these groups eventually catch up or ...