Every weekend we publish simple performance tables for a variety of different asset classes and categories along with brief commentary on each.
As this is something we do internally on a daily basis, we believe sharing it with clients will add value and help them better understand our top-down approach. We use these tables to provide insight into both relative strength and market internals.
This week we want to highlight our US Equity Index and Sector tables, as they are both showing continued evidence to support some of the trends we've discussed recently.
Did you see Consumer Staples go out at new multi-year relative highs yesterday? The strength is in Staples, not in Banks or Industrials, for example, which keep making new relative lows.
So why should we care?
"JC, no one cares about staples, why does this matter?"
Well, as it turns out, Consumer Staples relative strength is one of the most reliable indicators of market strength and weakness that exists. You see, when stocks are doing well, Consumer Staples tend to underperform the rest of the market. When stocks are doing poorly, Staples are the leaders.
Think about it. No matter how bad the economy gets, we're still going to brush our teeth, wash our dishes, smoke cigarettes and drink beer right? As a society, I mean. Well, those are consumer staples. This is the group of stocks that outperforms as stocks fall, which makes perfect sense.
Here is the chart of Staples breaking out to new multi-year highs relative to S&Ps:
It's hard to have a conversation about the previous bull markets in the United States without including Apple $AAPL. It hit a Trillion Dollar market cap and actually doubled in value last year, believe it or not. This is the poster child for big strong US stocks.
Today, I want to talk about just how clean this stair-step pattern has been for the stock. It's inability to continue this bullish tradition could mean big trouble for US Stocks. However, holding on to last month's lows could mean the worst might be behind us for the overall stock market. My bet is on the former, more volatility, but the market doesn't care what I think. So let's try to figure it out together.
As always, thanks to everyone for participating in this week's Mystery Chart. Almost all respondents were buyers. A few also mentioned they would only want to be long against potential support at the prior lows which is likely the same approach we'd be taking with a long-term timeframe.
With $VIX still holding above 50 and picking a direction is a crapshoot here, I'm still on the hunt for delta-neutral premium selling opportunities.
The way I do it is I scan the most liquid ETFs out there and rank them by volatility. And then I look for evidence of sideways action forming, or at least some very clear risk management levels to lean against.
The market rallied almost 20% in just three days after making new lows last Monday. Stocks recently sold off in record fashion so it's no surprise to see them bounce with the same ferocity. But with the VIX still elevated above 50, we're not out of the woods yet and should expect the swift moves in each direction to continue for now.
Some say we're in a new bull market, but the charts tell us we're actually at a logical level for what appears to be no more than a bear market rally to stop and reverse.
For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!
We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.
You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?
If you're one of these people who thinks the lows for stocks are in, which sectors would you expect to be leading the way higher? The big important groups that fell the hardest, and therefore should bounce the most? Probably.
Well, what if I told you that it's been the opposite.
The leaders off the lows are Utilities, Consumer Staples, Healthcare and REITs:
Options premiums remain elevated in this market. This continues to put me on the hunt for premium selling strategies in the most liquid ETFs.
One of the ETFs showing the highest volatility appears to be starting to settle into a range. And we can sell options very far away from current prices which gives us a lot of wiggle room.
