Comparative strength studies can tell us the next market move

Today, lets take a look at some major market influencers and their relationships to the broad US stock market. I’d like to compare international equities, commodities, energy, bonds, value stocks,  and technology to the broad US stock market via the Vanguard total US market ETF.

I’m using the Vanguard broad US market ETF (VTI) because, unlike the SPX, it is not concentrated in any one or two sectors (such as the SPX’s concentration in technology names). This study should give us clues to potential shifts that are happening now, or are beginning to form, for the markets. I’ve included a correlation line below each price chart, and a comparative relative strength line at the bottom of each chart. The correlation line tells us how correlated the market we are comparing has been to the broad US stock market (VTI). A reading of “1.0” means they move in perfect harmony. Or, “-1.0” means they are negatively correlated (opposite directions most of the time). The comparative relative  strength (CRS) line in the bottom pane tells us if the market in question is outperforming, in line, or underperforming the broad US market right now. A change in the relationship (second pane, correlation) and a move towards under or outperformance (bottom pane, CRS) can be informative of a potential directional  shift in the market in question. Lets get at it.

International vs. stocks.

International stocks is a broad term, given how many country indices with various performance profiles there are. As a group they have been positively correlated and moving in tandem with US stocks since the 2020 COVID crash, although you will note a slight negative trend in the bottom pane suggesting underperformance, if anything. Nothing much to be gained by a broad market ETF exposure (again: individual markets can be selected for vastly differing performance)

Commodities vs. stocks

The chart shows that commodities are faltering (black line) vs the broad market of late. Correlation between the markets is roughly 0.7 (70% correlated) and the outperformance per the bottom pane is faltering. This is a make or break period for commodities.

Energy producers vs. stocks

Given that energy is a big chunk of the commodity index above, its no wonder that they are getting spanked of late. Again, this is a sector that needs to find a bid again–lest it return to the land of underperformance that it was stuck in prior to mid-2020.

Bonds vs. stocks

The 20 year US bond, as illustrated by TLT (black line) is outperforming its past performance this year. In fact, its performance is reasonably in line with the broad US stock markets as illustrated by the flat CRS line and its correlation is quite positively related to the stock market of late (0.88 positive). This may be lining up with the seasonal period of outperformance by bonds (summer). But keep an eye on the pattern for any ongoing strength by bonds post-summer.

Technology vs stocks

This is an interesting chart in that you will note the strong comparative strength (bottom pane) by technology stocks until mid/late 2020. Since then, the sector has been dead flat. So, given the risk of a potentially overpriced sector (fundamentals) and the relative flat performance vs the broader markets, iit makes little sense to own many tech stocks at this time. Moreover, there may be a changing of the guard by this sector, which could indicate future pain.

Value vs growth

This chart of value vs. the broader US stock markets tells the polar opposite story to that of the technology sector. It is clear, based on the CRS bottom pane, that after a prolonged period of underperformance by value stocks – value is turning around. The CRS for value has been flat since mid 2020, as has the technology CRS. The difference being that tech went from an outperformance trend while value has turned after a prolonged underperformance trend.

Conclusion: its fairly clear that we should focus on value stocks at this juncture.


Don’t forget that I’m speaking for the CSTA (Canadian Society of Technical Analysts) tonight at 7:30 pm EST. You can get a temporary membership to attend the Zoom webinar on the site – details are here – click on their link to register. I’m covering my new book – including some new material on developing a contrarian mindset.


Be sure to visit the video page regularly. There, you will find short (10 minute) videos covering topics not necessarily covered on this blog. For example, last week’s video covered my outlook on Bitcoin. Yesterday I recorded a video on the Chinese markets, which should be posted on Monday. Click here for details. 

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