We held our May Monthly Strategy Session on Tuesday. ASC Premium Members can click here to access the recording and the chartbook.
Non-members can get a quick recap of the call simply by reading this post each month.
By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends.
This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.
With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.
Key Takeaway: At last week’s CMT Symposium, the lack of bulls and high number of bears on the AAII survey was probably the most oft-cited single statistic by the symposium speakers. This week’s data confirms that pessimism. II bears reached their third highest level in the past decade and put/call ratios haven’t been as high as they are now since the COVID crash. Beneath the surface, however, there is evidence that investors haven’t actually thrown in the towel. The AAII Asset Allocation survey for April shows that while they said they were bearish last month, individual investors were actually increasing equity exposure. The spike in the put/call ratios meanwhile has more to do with collapsing call volume than surging activity in puts. Bearish sentiment extremes are difficult to identify in real-time, that’s why it’s typically best to go with the crowd until it has reversed.
It's no secret the oil and energy sectors have been outperforming in 2022.
Of course, when a trend like that is no secret, it tends to become a crowded trade. And we've seen a taste of the ramifications of that in recent weeks. There were some vicious pullbacks in all the biggest winners about two weeks ago.
Fast forward to today, and the smoke has cleared a bit. Many of these names survived the exits of hot money and are now showing signs of resuming their prior uptrends.
At the top of this list right now is Exxon Mobil $XOM.
This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.
In Focus for May: The first four months of 2022 have been a trying time for many investors. But while stocks have experienced their worst start a year since before the S&P index was expanded from 90 stocks to 500 stocks, the decline in the index has actually been a relatively normal correction. It’s premature to suggest that the lows are in, but the 13% decline in the S&P 500 from its peak is in line with the median experience of the last 9 times (dating back to the late 90’s) that the S&P 500 experienced a decline of 10% - 20% (less than 10% isn’t considered a correction, declines of more than 20% usually get characterized as bear markets).
The largest insider transaction on today’s list is a Form 4 filing by Simon Groom, who reported an additional $43 million purchase in the broadcasting company iHeartMedia $IHRT.
The chief financial officer at General Motors $GM, Paul Jacobson, revealed a purchase of roughly $1,357,650 worth of his own company's stock in a Form 4.
CFO activity always catches our attention as not many employees know and understand a company’s financial condition better.
But, in yesterday's note, we entertained the possibility of near-term upside following the pricing in of the upcoming Federal Open Market Committee meeting and the US dollar hitting resistance.
Given the favorable risk-versus-reward at current levels, we like taking a tactical long, looking to play the trading range Bitcoin finds itself in.
For this trade, we're solely leaning on Bitcoin to execute, as most alts are messy and in the process of breaking down. Those are both characteristics we want to avoid when searching for new longs.
Further, Bitcoin has outpaced its counterparts recently, as seen through Bitcoin dominance.
The market is messy and continues to remain so. There are only a select few names that are displaying the strength with consistency. In a messy market, that's the best area to focus on.
We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.
