Breakout in regional banks is good news, says Renaissance Macro's Jeff deGraaf
Speakers
Jeff deGraaf
— Technical Analyst, Renaissance Macro
Summary
Jeff deGraaf, Renaissance Macro's chairman and head of technical research, discusses technical breakouts in regional banks and small caps. He views the regional-bank move as a positive signal for credit quality and small-cap breadth, expects a tactical bounce in oversold Mag 7 names without a trend change, and prefers semiconductors over software. He also warns that gold and silver are in bubble-like territory and recommends systematic trimming into a possible 30-50% correction.
- Regional bank breakout seen as positive for small caps and credit quality.
- Small-cap relative trend is improving and broadening market leadership.
- Mag 7 names are oversold for the first time this week; he expects a tactical bounce, not a trend change.
- He dislikes software due to top patterns, while semiconductors look better.
- Gold is in bubble territory; he advises dollar-cost selling/trimming to lock in gains.
- He sees a possible 30-50% correction in parabolic precious-metals moves over six months.
Ideas
Regional bank breakout signals credit health.
Regional banks are the lifeblood of small caps and local lending. The breakout in regional banks and small caps is good news because it suggests the yield curve will not get out of control, shorter rates are in the offering, and concerns about auto loans and loan-book credit quality are probably in a decent spot. He views the regional-bank breakout as positive.
Small/mid-cap relative trend improving.
Small caps are outperforming on a relative trend basis, not just for a few days; the 50-day through 200-day relative trends are positive. He says the same relative improvement is also true for mid-caps. He sees the breakout and broadening leadership as healthier for the overall market.
Oversold Mag 7 due tactical bounce.
Mag-7 names have had an elongated period of relative underperformance and became oversold for the first time earlier in the week. He expects them to bounce tactically, but does not think this is a trend change.
Prefer semis over software.
He dislikes software, where tops are in place in some names and the charts make him uncomfortable; even a tactical 10% oversold reversion would not change the chart. By contrast, semiconductors do not show those top patterns and actually look better, and he does not see the dramatic semis-over-software outperformance changing soon.
Prefer semis over software.
He dislikes software, where tops are in place in some names and the charts make him uncomfortable; even a tactical 10% oversold reversion would not change the chart. By contrast, semiconductors do not show those top patterns and actually look better, and he does not see the dramatic semis-over-software outperformance changing soon.
Gold/silver bubble; trim into correction.
Gold's alpha over the past three years is matching the 1979/1980 high, putting it in bubble territory. He advises clients to dollar-cost sell/trim incrementally to book gains because the move is unsustainable, and sees rising odds of a 30-50% correction in these moves over the next six months. When asked about gold and silver, he acknowledges an underlying trend but says the near-term parabolic move is unsustainable and creates air pockets by sucking in marginal buyers.
