From the desk of Willie Delwiche.
Key Takeaway:
- Thrust but verify.
- Fed up with higher rates.
- Worst six month stretch ever has investors in an exceedingly bad mood.
The June index-level lows are holding for now, but the response to the breadth and momentum thrusts that accompanied the summer rally has been somewhere between uninspiring and historically bad. On the one hand, the S&P 500 was essentially flat in the month following July 28 breadth thrust signal based on a surge in the percentage of stocks making new 20-day highs and even now is not outside the range of what has been seen in the past. The mid-August signal based on surging 40-day momentum, however, has been followed by unprecedented weakness.
These thrusts typically are evidence that conditions are improving and a sustainable rally is at hand. But that is usually verified by longer-term trends turning higher and consistently seeing more stocks make new highs than new lows, conditions that are both conspicuous by their absence in the current environment. As much as breadth thrusts typically herald the birth of a new bull market, it usually requires an uptick in risk appetite and risk on behavior to have a successful delivery.
