Last week we had the opportunity to speak with Dan Russo, CMT, Chief Market Strategist at Chaikin Analytics about his economic outlook. It was an interesting look at the most important indicators some market technicians are watching around the world as we head into 2021.  

Russo believes we are closer to a new cyclical bull market, and he sees room for another 500-point gain in the S&P 500 during this next phase of the bull rally.   

Even before the pandemic, broad indicators of the markets and small caps were practically in a bear market for two years, with the markets going nowhere outside the large-cap technology stocks. The Russell 2000  (IWM) is just now getting back to its 2018 highs. 

1. Breadth is broadening out. Right now, more than 90% of stocks in the S&P 500 are trading above their 200-day moving averages and the advance-decline line is near an all-time high. Whereas before, leadership was concentrated in big tech, now we are getting broader participation. 
2. Haven assets such as Treasuries, gold and the dollar are under pressure, indicating that investors are willing to take on more risk. (GLD, UDN)
3. The copper-to-gold ratio, a market proxy for how investors are viewing global growth prospects, is moving higher. Additionally, the yield curve is steepening.

We talked about how semiconductors can be used as a critical new gauge for the market, given their importance for advancements in technology and artificial intelligence. Russo believes that when semis are leading, that is usually a bullish sign for the technology sector and the market in general—and Semiconductors are currently accelerating. Additionally, markets such as Taiwan that are semiconductor and technology centric are trading at all-time highs.  

Financials: The steepening yield curve is a tailwind for the banks. They also took big reserves for loan losses at the start of the pandemic, so numbers are likely going to look a lot better going forward, especially as economic activity picks up. 

Energy: Russo doesn’t think he’s ever seen a sector more hated than energy was three or four months ago, but we are seeing early signs of a turnaround. Better economic prospects could help the demand side of the picture, while the supply side has been a mess. Chaikin’s model just turned bullish on the services space for the first time in more than a year. 

Finally, Russo is a long-term bull on bitcoin (BITCOMP), based on the supply-and-demand dynamics at play. New supply hits the market at a declining rate, and we are beginning to see demand move from retail investors and early adopters to more institutional owners and even corporate balance sheets. In a world in need of inflation hedges, Russo thinks bitcoin is the best inflation hedge there is.