The Three Charts John Roque is Watching

Legendary technician, John Roque made a rare appearance on Bloomberg TV yesterday with host Abigail Doolittle. They discussed interest rates, and why he thinks Chinese stocks will outperform the US. He presents three charts; the Shanghai Composite, the 30-year Treasury bond and the S&P 500, offering some specific things to be mindful of with each. Here's what he had to say.

1.) Shanghai Composite Breaking Out

"We like China, we like the Shanghai Composite and we actually like it more than the S&P 500 here."

Roque is the most bullish on the Chinese Shanghai Composite. He presents the long-term chart above and says that it's reasonable to expect the index to rally to the 4000 level from here.

2.) Bonds Breaking Out

The next chart Roque takes a look at is a long-term chart of the 30-year US Treasury bond. He thinks the benchmark US 10-year Treasury yield will sink to 2.5% or perhaps lower. Yields and Bonds have an inverse relationship with one another. Therefore, if rates are heading lower, bonds will rally. Below is a chart he uses in the interview that he also shared on Twitter. The Chart shows the 30-year Treasury bond breaking out of a long-term base.

"How is it that the US Rates are going to rally when the other G7 rates are going down? 

This is a question Roque has been pounding the table on for months. Here's an in-depth analysis of Roque's thesis on global interest rates from The Chart Report.

3.) Cautious on the S&P 500

Lastly, he takes a look at breadth in the US stock market. He explains that it's not strong enough for him to be bullish, despite the massive rally we've seen off the December 2018 lows. He measures breadth using a popular metric, the percentage of stocks above their 200-day moving averages in the S&P 500. Below is a chart he shared on twitter showing the S&P 500, overlaid with this breadth indicator.

"In order for the S&P to have a durable push from here. This indicator is going to have to confirm, and get above the 50% level." 

He points out that breadth never got above 50% and made a lower high than the S&P 500. This negative divergence shows a lack of broad participation among the individual components of the index. However, Roque isn't totally bearish on the S&P 500 either. He reiterates his idea that Chinese stocks are more attractive than the US right now. He adds that it'd be a bullish development to see this indicator get above 50%.

Roque makes some very valid arguments in his interview and came armed with some great charts to support his theses. We'll be sure to keep an eye on these three charts and report back with any major developments. To read more about John Roque check out this post from the Chart Report.