- Financials sector has continued to slip in our relative strength rankings, falling to its lowest level in over a year and dropping out of the leadership group.
- Consumer Staples remain toward the bottom of the overall rankings, but have been the top-ranked sector on a short-term basis and we are seeing evidence of improving trends at the industry group level across market capitalization levels.
- Large-cap health care is rising in the rankings, but this strength is not echoed at the mid-cap or small-cap level (or even on an equal-weight basis at the large-cap level)
[PLUS] Weekly Sentiment Report
From the desk of Willie Delwiche.
Key Takeaway: A healthy level of optimism ushers investors into the holiday season. But lofty expectations are neither reflected in price nor supported by breadth. Participation is struggling to expand beneath the surface and cyclical areas of the market are retesting critical levels of support. A narrow rally running on empty leaves the market vulnerable to disappointment and could challenge high spirits. The question becomes how patient will investors be, especially since consumer sentiment is in the dumps. If the fish aren’t biting, some may prefer to cut bait.
Sentiment Report Chart of the Week: Consumers Are Cranky
The latest data from the University of Michigan shows consumers are in a pretty bad mood. The Consumer Sentiment Index for November is at its lowest level in a decade. While the expansion in the number of stocks hitting new lows probably doesn’t help, this seems to reflect political divisions and partisan divides more than than an actual economic or market reality. Too often we let the headlines and news stories from afar sway our moods rather than being thankful for and acting on the actual opportunities that are before us on a daily basis.
[PLUS] Weekly Market Perspectives – Rising Rates A Risk When Indexes Lack Broad Support
Key Takeaways:
- Bond yields rising as pressure mounts for Fed to raise rates
- From hints of new highs to expansion in new lows, the broad market is being tested.
- Commodities, currencies & bonds struggle with risk on message
With schedules of all sorts thrown off by travel and the Thanksgiving holiday (no Townhall conversation this week), this seems like a good chance to review a handful of charts that I’ll be keeping an eye on as we move toward year-end and into 2022.
The 10-year T-Note yield continues to move between its March high (near 1.75) and its August low (below 1.20%). Yields on 2-year and 5-year Treasuries have climbed to new recovery highs as the market has priced in Fed tightening. Given the inflation outlook, much of the debate is on why bond yields are still so low. Take a look at a chart of a global bellwether like Caterpillar (CAT) and the question might become, why are bond yields so high.
[PLUS] Weekly Market Notes & Breadth Trends
- With Energy and Financials experiencing short-term weakness, new leaders have emerged. Consumer Discretionary, Technology and Real Estate are in the top three spots in our relative strength rankings, showing leadership on both an equal-weight and cap-weight basis.
- Our industry group heat map shows Semiconductor strength is fueling the leadership coming from the Tech sector.
[PLUS] Weekly Observations & One Chart for the Weekend
From the desk of Willie Delwiche.
It’s no secret that we’ve been looking for evidence of improving breadth that would support last month’s breakouts in the small-cap and mid-cap indexes and provide fuel for a rally into the first quarter of next year. Instead we are finding evidence of the opposite – that rally participation is struggling to robustly expand. That’s the message when we look beneath the surface of the NASDAQ. The NASDAQ composite closed at a new high on the same day that the new low list rose to its highest level since March. March 2020. Another way to look at it (shown on the chart below) is that never in my career have I witnessed more NASDAQ stocks making new 52-week lows on the same day that the NASDAQ Composite made a new 52-week high. I don’t know if it will be the case this time, but when the market is heading for trouble, new low lists crescendo in size. This is not unlike tremors before an earthquake.
[PLUS] Weekly Town Hall w/ Willie Delwiche
This is the video recording of the November 18th Weekly Town Hall w/ Willie Delwiche
11/18/21 2:30 PM ET [Read more…]
Breadth Thrusts & Bread Crusts: Learning From My Spirit Animal
From the desk of Willie Delwiche.
Last week, I wrote about how stillness can be the riskiest decision.
This week, I want to discuss how periods of stillness can be part of the best approach.
This idea brings to mind my favorite bird: the Great Blue Heron. If I have a spirit animal, this would be it.
[PLUS] Weekly Sentiment Report
From the desk of Willie Delwiche.
Key Takeaway: Bullish sentiment is on the rise. The bears may be reluctant to leave the party, but the bulls squarely outnumber their counterparts. The AAII survey shows bulls exceeding bears by two-to-one, and the II bull-bear spread is back within a high optimism zone. At the same time, options markets reveal that volatility and fear are being replaced by complacency. Though optimism has risen sharply during the past few weeks, current levels do not present risk. However, problems may arise when the lofty expectations associated with the sentiment backdrop are not met.
Sentiment Report Chart of the Week: Risk On Buffett Lacking Calories
While risk appetite has returned (NASDAQ and CBOE equity options volume have turned sharply higher), this is not translating into clear strength from higher risk (e.g. risk on) parts of the market. To the extent that our risk on / risk off ratio has been moving higher, it has more to do with risk off weakness than because of risk on strength. Our pairwise comparison of higher risk and lower risk assets does not show a decisive tilt toward higher risk outperformance in recent months. Optimism that gets rewarded can fuel further strength, optimism that is frustrated can lead to regret.
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