From research by Potomac and the Conquer Risk podcast, this is Who Charted? Welcome to Who Charted. My name is Minish Kada with the award-winning chartist himself Dan Russo. Let's get after it.
Getting after six charts, six minutes. We love to talk about breath here at Potomac. And this is kind of a riff on the Advanced Cline Line. A lot of people look at the Advanced Cline Line by itself.
This chart here takes NYSE Advancing Minus Declining Volume, right? So it kind of gives you a sense of conviction. Is more stop trading or more volume trading in the stocks that are going up? Or is more volume trading in the stocks that are going down?
So similar to a lot of other breath metrics throughout most of this year, especially since May. It's been trending to the downside. Everybody who's been making a bear case on equities has been using breath. But what's interesting here is this has now broken the downtrend line and is moving higher about to take out near-term resistance after holding support.
So this is a breath metric that did not break down and is now reversing and going higher. And at the same time, the S&P 500 has retaken its 50-day moving average. So if you were bearish to the market because of breath, I ask you what are your thoughts on this chart as breath appears to be approving based on this metric and a few others that we track. Keeping it in the theme of breath, when markets move, we look for confirmation.
So a couple weeks ago, we talked about the S&P 500 making a lower low, but there was a non-confirmation. From breath or the advanced decline line that did not make a lower low. And what happens since the market has since rallied and the advanced decline line is now close to confirming an all-time high, which in our book means the broader market will follow suit. And on the bottom chart, you have NYSE new lows.
We've been on record over and over again. We do not give a shit about headlines and deficits and tariffs and anything else. Wake me up when there is a spike in new lows because otherwise, deeper declines will be bought. Rallies will happen off these deeper declines and you'll never see anything close to a correction, traditional sense without a spike in new lows.
And that simply has not happened in any of the declines over the past year. And until that happens, you got to continue to look at this market in a bullish uptrend. Alright, a lot of people talking about the re-emergence of the reflation trade or the cyclical trade or the value trade, call it what you want. To me, this is your guidepost for that theme.
This is the copper to gold ratio. We write about it a lot. We talk about it a lot. We've gone through the mechanics of why we think it makes sense.
Copper is an industrial metal, gold is a precious metal, one kind of speaks to risk on, the other speaks to risk off. We have now taken out the 2018 highs. You can see that precipitous decline starting in 2018, coinciding with generally speaking, slower economic growth globally. We've now rebounded and taken out those highs.
So this is a chart that we're going to continue to watch as a barometer for the reflation trade or the cyclical trade, call it what you like. But it's trading above its 2018 highs and on the verge of testing highs last seen in 2013. That is by definition an uptrend. We have a breakout here in the copper gold ratio that looks like it has some running room.
If copper is rallying, if you're getting buy signals from lumber gold and the 10 years rallying, what do you want to buy? Well, look to the charts to confirm that thought process, right? This is the definition of an inner market analysis. So right now you're looking at financials breaking out to all-time new highs.
Commodities continue to rip higher after the sum of doldrums that it went through. And then S&P 500 energy continue to make it new highs. So you can be scared about commodities and not allocate certain percentages of your portfolio to it, or you can follow the trends. And at this point with the inner market analysis data points telling us what they are, these reflation themes are in play.
And so when in doubt zoom out, the rally was happening for the past year, but it took that pause over the summer time where growth kind of took over and now we're right back to where that is. So hopefully this trend continues if you're allocated to these sectors of the market. And I think it's something to watch out for in the next three or six months. So with the kind of the reflation trade back on, does that mean you're blindly run out and sell the NASDAQ, right?
Probably not. Take a look at the NASDAQ composite index. It's a weekly chart. The green line on the chart is the 40-week or 200-day moving average.
The red line is the 10-week or 50-day moving average. Kind of stuck between them now trying to poke through the 10-week moving average. But the NASDAQ composite is still very much in an uptrend. Confirmed by momentum, take a look at the 14-week RSI.
It's solidly in a bullish regime. Pullbacks have not been able to push that indicator much below the 50 level. And on a relative basis, okay, maybe it's an in-line performer at best. But I don't necessarily think you turn around and see something like copper gold or the cyclical areas outperforming and say to yourself, well, I'm going to run out and blindly sell the NASDAQ.
Still have to pay attention to the trends. The trends here are still higher. And I think we get above that 10-week moving average. You're likely playing for the highs that we saw just a few weeks ago and beyond that.
So don't just blindly sell the NASDAQ here. Pay attention to the trend. It's working higher. We've talked about transports over and over and we being me.
I love it. It's my favorite lead indicator. It topped out earlier in the year, declined 12% since then with the S&P 500 recently, at least making all-time highs. This is why you put filters on moving averages.
Because what happens is you have to have some sort of time period that you would evaluate this. So the transports went through. It's 200. We talked about how it was at a critical point and it has since bounced off of it in a very great way, right?
We want to see this thing continue to rally. It's leading the market higher on a very short-term basis. If this thing makes a new high and continues to rally, then watch out. We do feel that the broader market at that point will continue to rally through the end of the year.
So once again, something that we're looking for as a leading indicator is the movement in the transports. All right. I think the key takeaway here is what you're seeing across the board is breath is improving. Thanks for taking some time to be with us on who charted.
Don't forget to hit the like button and to subscribe. We'll be back to you soon with some more updates. Thank you. Clients of Potomac Fund Management may maintain positions in the securities discussed in this podcast.