Previously, I discussed the “follow-through day” concept. The problem we had was the strong pullback on June 28th cancelled the follow-through day. However, we are working our way higher as the market continues to make progress, climbing off the lows of last week. The big challenge for next week will be to try and make higher highs and close up there. Looking at the Nasdaq, the 3-month downtrend has finally been broken.
One of the charts I am focused on is a ratio chart (black centre panel). This is a ratio chart that can help define growth vs. value investing. The chart started building a downtrend in November 2021, when the current market correction started. However, price is currently at a really important junction of two trend lines.
This does not predict uptrends or downtrends. It does tell us where investors are focusing their investments, Growth or Value. A breakout above this downtrend will be an important signal to get long growth for the first time since 2021. If this ratio turns down here, it would suggest avoiding the high growth area. Recently, this has been trending higher, suggesting a potential change towards growth is in the wind.
Lots of technicians are noticing a rotation back towards tech, but it has been spotty. I continue to watch software for a return to former glory. The relative strength is close to three-month highs. The SCTR ranking is changing from awful to less than awful. But it does take a lot of momentum to change this indicator, so this is very constructive. The PPO is almost firing off a buy signal this week, which is also nice to see.
The market is getting more constructive here, and I continue to look for more opportunities.