From the desk of Willie Delwiche.
Key Takeaways:
- Breadth thrusts and global strength have fueled the market in the past
- Price patterns are consistent but participation is stronger now than in 2008
- If June low was important, remainder of 2022 could see less volatility and more strength
The first half of 2022 was a great time to be on the sidelines, letting the bulls and bears bloody themselves in the market. Last year saw the previous breadth thrust regime expire in June and by November more stocks were making new lows than new highs. As 2021 turned to 2022, fewer and fewer world markets were showing any strength. The second half of the year is shaping up to be a different story, with a breadth thrust in July and a sharp expansion in the percentage of world markets trading above their 50-day averages, the conditions that have fueled all of the net gains in the S&P 500 in the past 40+ years are now present.
We have compared the market action over the first half of 2022 to the behavior of the market following the peak in Q4 2007. While the price action has been eerily similar, the breadth thrust in July makes continuing along this path a less likely outcome. This isn’t discounting macro concerns as much as it is trusting the evidence that we have in hand. As significant as some of the rallies were in 2008, none were able to produce a breadth thrust. Seeing less volatility in the indexes and more strength beneath the surface over the remainder of the year would be further evidence that the June lows marked an important turning point.
