Key Takeaway:
- After bounce, trend environment still trying.
- Health of the economy hinges on the desire and ability of consumers to spend.
- Risk On case needs to prove its point.
Expert technical analysis of financial markets by JC Parets
by Peter
Key Takeaway:
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.
Major Levels
The Dollar Index and rates are the two most important charts on the planet right now, and they’re both rolling over. If these two critical areas of the market catch lower, it should provide a much-needed boost to a stock market still grappling with selling pressure. A weaker dollar lifts all risk assets, while lower rates should impact the most beaten down areas, primarily tech. If these tops resolve lower and stocks don’t catch a bid, it raises an important question: What will it take for stocks to rally?
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
From the desk of Willie Delwiche.
In a year marked by broad weakness in both stocks and bonds, commodity strength has provided some portfolio ballast for those who have been willing and able to expand their asset allocation opportunity set. After several weeks of consolidation, the CRB commodity index is again making new highs. But rally participation looks to be narrowing. Only 12% of the commodities in our ASC Commodities universe have made new 52-week highs in the past two weeks. This was as high as 50% earlier this year. Perhaps not surprisingly, our equal-weight commodity index has not confirmed the strength in the CRB index (which has heavy tilting toward energy-related commodities). I think Bob Farrell’s Rule 7 applies here: “Markets are strongest when they are broad and weakest when they narrow.” Strength in the CRB index is more likely to persist if it’s not just energy fueling the advance.
by Peter
This is the video recording of the May 26th Weekly Town Hall w/ Willie Delwiche.
05/26/22 2:00 PM ET [Read more…]
by Peter
From the desk of Willie Delwiche.
The minutes from the May FOMC meeting were released this week, leading to renewed “will they or won’t they” discussions about potential rate hikes later this year.
I’m old enough to remember when FOMC minutes weren’t really a thing. I liked it better then. I also preferred when Fed officials (both Board Governors and Regional Bank Presidents) were rarely seen, and even more scarcely heard. But I digress…
When thinking about where rates have gone in the past and where they could go in the future, it’s helpful to remember the context of the Fed’s dual mandate (stable prices and full employment). The last three tightening cycles all began with lower inflation & higher unemployment rates than we have now.
by Peter
From the desk of Willie Delwiche.
Key Takeaway: Fear and concern are at the tip of every investor’s tongue, yet their eyes remain on the market. For all the pessimism suggested by sentiment surveys, there’s still a great deal of hope as the desperate search for the bottom continues. Yes, put call ratios are on the rise but that’s mostly driven by falling call activity as last year’s speculative exuberance evaporates. Also, investors continue to favor equities over more defensive assets such as bonds and cash despite what they say. Caution remains warranted until attitudes change or market participants are forced to avert their gaze out of disgust. After we see evidence of improved price action (and likely a series of breadth thrusts), accumulated pessimism becomes fuel for a rally, but the timing of that turn is anybody’s guess at this point.
Sentiment Report Chart of the Week: Contrarian Positioning Is To Go Long Bonds
With all the focus on sentiment indicators, it seems like being a contrarian right now is all the rage. The problem with this approach is that while investors say they are pessimistic about stocks (and the economy), their positioning tells a different story. Household equity exposure was at an all-time high coming into 2021 and despite weakness in stocks this year, equity ETF’s have continued to see inflows. Even target date funds (a popular choice for passive investors) have been increasing equity exposure in recent years. It’s a different story for bonds. As dark as the mood has been on equities, it’s been even worse for fixed income and this sentiment is actually reflected in positioning. Coming into this year, household exposure to bonds was its lowest since the early 1970’s. With yields having risen to and now pulling back from well-tested resistance as concerns about economic deterioration rise, the contrarian call might not have anything to do with stocks. It might be to go long bonds.
by Peter
From the desk of Willie Delwiche.
They are cracks more than crevices at this point, but the fissures are there. And they are becoming more widespread. Signs of financial (and economic) stress are on the rise. While generally still at historically low levels, they merit watchful attention as the Fed moves forward with an accelerated program of interest rate hikes.
Evidence of stress is emerging across the fixed income landscape: high yield spreads are rising, corporate bond yields have the most upside momentum since the financial crisis and mortgage rates are at their highest levels in over a decade.
We are already seeing the implications of this in the housing market. New single-family home sales have fallen 20% over the past year while homes for sale have surged 35%.
As stresses continue to build, we could see renewed interest in traditional safe haven assets (especially Treasury Bonds). Whether this period ends up being labeled a recession (formal or otherwise) is an open question. But the data increasingly point to a meaningful deterioration in economic conditions.