In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Stocks Fail at Key Level
A wide variety of risk assets have suffered significant corrective action dating back to last year. As such, we’ve gotten used to looking for logical areas of potential support, or levels where we could expect demand to enter the market.
No levels have provided a better guideline than the prior-cycle highs from 2018. And when it comes to the stock market, no index provides us with a more comprehensive view of the price action than the Value Line Geometric (VLG), shown below. The Value Line is composed of roughly 1,700 components and is designed to measure how the average - or more specifically, the median stock is performing.
As you can see, the median stock is currently rolling over after a successful retest of its 2018 highs. As long as the Value Line is below 595, stocks are likely to remain under pressure.
Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.
By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.
Let's jump right into it with some of the major takeaways from this week's report:
* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.
Powell’s tough talk justified by incoming inflation data.
Slowing growth unlikely to derail Fed’s plans.
Bull market re-birth struggling with labor pains.
Our bull market re-birth checklist took a step backward but a tough labor does not preclude a successful delivery. Without new complications from a macro perspective, we are willing to be patient and trust the thrust. At the same time, however, so far this year stocks have yet to show that they can sustain strength when yields and the dollar are rising. If the market is taking the Fed at its word, then higher bond yields are likely to be seen this year, in the US and around the world. Japanese yields are again approaching the 0.25% level that the Bank of Japan has targeted as a ceiling for yields. When that happened in Q2, the yen suffered.
With volatility still up since Friday afternoon's stock market freakout, we're going to continue to take advantage of this volatility rise to add an additional, much-needed delta-neutral credit spread to our portfolio to diversify our risks somewhat.
So today I'll be positioning into an index ETF near the top of the implied volatility charts.
Over the last two weeks, we've made the case for short-term caution and patience. This approach has proven timely, with Bitcoin correcting 20% over this period.
As it currently stands, Bitcoin lies on a shelf of support near its most recent pivot lows, around the 18,000, 19,000 neighborhood.
Bearish sentiment seems to be approaching extreme levels, with both Ethereum and Bitcoin quarterlies trading backward.
At the same time, the macro backdrop continues to be a risk-off picture.
The S&P 500 has lost a key level of support, while the US dollar, interest rates, and crude oil all look prime to begin a new leg higher.
Ernest S. Rady, the chairman and CEO of American Assets Trust $AAT, continues to appear on our list with his eighth Form 4 filing in the trailing month.
Rady reported his latest purchase on Friday, revealing another 25,000 shares, equivalent to $719,600.
Back in early July, we were looking to buy a bounce in natural gas. Let's just say it was a success, as our target was hit within weeks.
But you have to remember the environment back then. Commodities had experienced a broad sell-off. And natural gas and agricultural contracts such as wheat and cotton had recently experienced drawdowns exceeding 40%.
It might have seemed like a tough call at the time, but for us it was clear. The risk/reward was in our favor as natty pulled back to test a key level. It was that simple.
Fast forward almost two months, and we’re back for more. Our risk is well-defined, and cyclical areas of the market are assuming leadership.
Today, I’ll share how we’re gearing up for a fresh leg higher in natty gas.
First, let’s take a look at the weekly chart of natural gas futures.
