This is the video recording of the September 1st, 2022, Weekly Town Hall w/ Willie Delwiche.
09/01/22 2:00 PM ET [Read more…]
Expert technical analysis of financial markets by JC Parets
by Peter
This is the video recording of the September 1st, 2022, Weekly Town Hall w/ Willie Delwiche.
09/01/22 2:00 PM ET [Read more…]
by Peter
From the desk of Willie Delwiche.
The first eight months of the year have been a grind.
A mid-month reversal in August took the S&P 500 from a 4% gain to 4% loss for the month and the early breadth and momentum thrusts now seem like a distant memory. Two-thirds of the way through the year and we are on track for the fewest days of more new highs than new lows observed in the past two decades, and 2022 is just ahead of 2020 (and lagging only 2009) in terms of daily swings of 1% or more on the S&P 500. Weakness in stocks this year has been exacerbated by weakness in bonds, as yields have climbed to new multi-year highs. The 60/40 stock/bond benchmark portfolio is down 14% through August.
Welcome to September. If you haven’t heard, it’s the worst month of the year for stocks. Since 1950, only two months (February and September) have been down on average. This is a case were we don’t really need to focus on the exact numbers – the large red bar for September says it all:
by Peter
From the desk of Willie Delwiche.
Key Takeaway: In July, consumer expectations for stocks dropped to their lowest level since March 2009. Excessive optimism is clearly not an issue for stocks right here. But bulls need to be resilient if the market is going to move higher. Recent breadth and momentum thrusts are fodder for optimism, but the persistent downtrend in stocks is dampening rally attempts. The latest numbers from AAII, II and NAAIM suggest questions about bullish resolve are well-founded. All have rolled over and are showing increased caution. If that continues, a broader re-set becomes more likely – one in which positioning (which has been resilient) gets more in line with sentiment.
Sentiment Report Chart of the Week: Expectations For Stocks Have Tanked
Among the questions asked in the University of Michigan Survey of Consumers is one regarding expectations about the direction of stocks over the coming year. Specifically it asks about the perceived likelihood that stocks will rise over the next 12 months. When that data for July was aggregated, it showed the smallest probability that stocks will move higher since March 2009. That is not too out of line with some of the other sentiment extremes witnessed earlier this summer. But it also highlights the continuing contrast between sentiment and positioning. In March of 2009, the AAII asset allocation survey showed 41% exposure to stocks. In July it was at 64%. Prior to this year, the correlation between these two surveys was better than 80%, but they were further apart than ever in July.
by Peter
From the desk of Willie Delwiche.
Key Takeaways:
The mid-August momentum thrust was just two weeks ago, but it seems longer than that. The S&P 500 has gone from up 4% for the month to down 3% for the month, in the process giving back half of the entire rally off of the June lows. It is possible that the volatility environment produced false signals of strength, but we are not ready to jump to that conclusion. The combination momentum and breadth strength seen prior to the mid-month peak has been a typically reliable indicator that further strength lies ahead for stocks. Two weeks of price action is not enough for me to throw out 40-years worth of data.
That being said, the market could struggle to display the strength that these indicators have signaled in the past as long as we remain in a risk off environment. Moreover, the struggle for stocks is more acute when they are trending lower and bond yields are trending higher. If we see more red-lights flashing on our Macro Health Check we will need to re-evaluate our position, but for now I am inclined to trust the thrust.
by Ian Culley
From the desk of Steve Strazza @Sstrazza
Our Top 10 Charts Report was just published.
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.
by Ian Culley
From the desk of Steve Strazza @Sstrazza
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.
by Peter
Key Takeaway:
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.
Beyond financial market fluctuations, the tough line from the Fed could be tested by economic realities this Fall. Regional Fed survey data shows new orders contracted in all five of regions for the second month in a row in August. The averages of both the new orders and overall composite indexes were negative for the third month in a row. In recent cycles, the Fed would be cutting rates at this point, but now it is talking tough about continuing to tighten. That does not mean that the market signals are wrong, but it does speak to a challenging macro backdrop.
by Peter
From the desk of Willie Delwiche.
Fighting inflation is job number one for the Fed right now. Jerome Powell made that crystal clear in his remarks from Jackson Hole on Friday. He discussed the deleterious effects of inflation and the risks that come with prematurely claiming victory (and loosening policy). This could lead to more persistence in raising rates, more tolerance of economic weakness, and more willingness to keep rates high for an extended period of time. In this environment, inflation data will be scrutinized more than ever. While inflation expectations get a lot of focus, they are much more closely related to where inflation has been than where it is going. There is an 85% correlation between 5-year CPI inflation and current 5-year inflation expectations. That drops to just 26% when inflation expectations are moved ahead 5 years (so that the inflation data and expectations data are covering the same time period). If inflation stays high, expectations will become further unanchored. Alternative measures of inflation (like the median CPI from the Cleveland Fed and the trimmed-mean PCE from the Dallas Fed) show that the central tendency for inflation remains higher. The Fed is likely in for a long fight – the question from our perspective is whether this macro issues will overwhelm the positive market developments that we have been observing in recent weeks.