Instead of fresh legs higher, investors were dealt a handful of downside reversals and failed moves. Last week, we went from discussing breakouts and new highs for stocks... to throwbacks and retests of old ranges. This all happened in the matter of a few trading sessions.
A lot has changed in a short period. In times like these, it’s important to take a good look under the hood to see what market internals are suggesting.
As we reviewed our breadth chartbook today, we asked ourselves the following questions:
Are we seeing a notable expansion in new lows? Is it enough that we should be worried?
Let’s take a look beneath the surface and see if we can find some answers!
First, let’s check in on the 21-day and 63-day lows for the S&P 500:
We held our December Monthly Strategy Session last night. Premium Members can click here to review the recording and the accompanying slides.
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 a valuable exercise, 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.
There’s no shortage of headlines this week -- a potpourri of potentially market-moving developments.
And boy, have markets moved! Of course, these market gyrations are probably not quite for the reasons the headline writers have proposed. But we can leave that discussion for another day...
Today, I want to talk about when to change course and when to sit tight.
Let’s consider the recent comments from Fed Chair Powell on inflation and apply a lesson I learned when sailing on the waters of Lake Michigan.
We're selling an $IWM December 31 (weekly) Iron Condor. We’ll be short the 210 puts and 235 calls, while protecting the position $5 away in both direction with long 205 puts and 240 calls. This entire spread can be put on for about a $1.70 credit.
Check out our short video with the thought process behind these trades:
When investing in the stock market, we always want to approach it as a market of stocks.
Regardless of the environment, there are always stocks showing leadership and trending higher.
We may have to look harder to identify them depending on current market conditions... but there are always stocks that are going up.
The same can be said for weak stocks. Regardless of the environment, there are always stocks that are going down, too.
We already have multiple scans focusing on stocks making all-time highs, such as Hall of Famers, Minor Leaguers, and the 2 to 100 Club. We filter these universes for stocks that are exhibiting the best momentum and relative strength characteristics.
Clearly, we spend a lot of time identifying and writing about leading stocks every week, via multiple reports. Now, we're also highlighting lagging stocks on a recurring basis.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Treasury yield spreads are contracting.
Inflation has been the talk of the town in recent weeks. But, now that the Federal Reserve has finally joined the chorus, the market seems to be headed in a different direction. At least over the near term.
We’ve been closely monitoring long-duration rates for signs of further weakness. As we write, the 30-year is violating its summer lows, and the 10-year is testing a critical level of interest around 1.40%.
The bulls really need these levels to hold. If they don't, we’d better get used to the recent volatility--because it’s likely to get worse.
Stocks finished a volatile month of November in downbeat fashion, with breadth deteriorating and downside momentum expanding. Global equities bore the brunt of the weakness, though there was plenty of it to go around. Just one month removed from a new high in the All Country World Index (ACWI), a quarter of the country-level indexes that make up that composite finished November at new 12-month lows and only 10% were above their 50-day averages. Domestically, sector-level price, breadth and momentum trends showed a degree of weakness that in the past has been associated with index-level drawdowns of 7% or more and yet the S&P 500 finished November less than 3% from it's all-time high.
