From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge
For the better part of 2021, we've been pounding the table about markets being a chop fest. And we'd seen little evidence suggesting this was likely to change any time soon--until this week, that is.
Trendless… range-bound… call it whatever you want, but the path of least resistance for stocks and many other risk assets has simply been sideways!
Alas, we’re seeing some strong bullish action this week that we simply can’t ignore. Let's talk about it.
Before we get there, though, let’s take a step back and look at small- and micro-caps, as they provide great illustrations of this sloppy stock market story...
SMIDs and micros have not been able to make any real progress for most of the year.
It’s an important question, especially for those of us who maintain exposure to bonds.
And for those of us who don’t, it’s always good to know what’s going on in the fixed income space, as it’s often very valuable information.
Frankly, as investors, it’s irresponsible and negligent to not know what’s going on in this asset class.
It’s the largest market in the world!
And right now we’re seeing evidence of a shift in leadership toward High Yield Bonds $HYG.
We know it’s in our best interest to pay attention to this development so let’s look at a couple charts that suggest bond investors are reaching further out on the risk curve for a higher yield.
From the desk of Steve Strazza @sstrazza and Grant Hawkridge @granthawkridge
Whether more stocks are going up or down these days simply depends on where you look. Some advance-decline lines are moving higher, but others are moving lower.
Weakness and divergences in these indicators are more often than not resolved over time, but the longer they persist the more concerning they become.
This hasn’t been an issue for most of the major averages, as the S&P 500 and other large-cap indexes keep making new highs with confirmation from their A/D lines.
Yet when we look beneath the surface, and particularly down the cap scale, we're seeing a different story. Ultimately, some stocks are going up, but most are not.
You’ve probably heard already, but the current environment is an absolute mess as the weight of the evidence continues to hang in the balance. In today’s post, we’ll discuss some charts that do a great job illustrating all the mixed signals out there right now.
Seasonality of markets is something I've done a lot of work on throughout my career. As humans who are part of society, we behave differently depending on the seasons. We dress differently, we hang out with different people, we go to different places, all according to a calendar.
If you think those behavior changes don't impact our decision making, then I don't think you understand humans. And if you think those behaviors and decisions don't affect how we participate in markets, then I think you're just being naïve.
I encourage you to pick up a copy of the annual Stock Traders Almanac published by my pal Jeff Hirsch.
Yesterday after the close, I had a great chat with Ed Clissold, the Chief U.S. Strategist at Ned Davis Research. The podcast episode will be up shortly, so keep an eye out for it. You can subscribe to my Technical Analysis Radio Podcast here, if you haven't already.
Key Takeaway: It appears the bulls are preparing to pack it up and call it a day. Dark clouds are starting to roll in, as the slow deterioration beneath the surface has taken its toll. New highs and a relentless rally in the major indexes paint an alternate reality versus the experience of the average stock--a reality that hasn’t quite sparked the interest of the bears so much as it’s exhausted the bulls. Active investment managers continue to taper their exposure, and advisory services have turned their least bullish in more than a year. A storm is brewing in the form of a re-set in sentiment. As it inches closer, the question becomes more of “when” and “how,” not “if.”
This week I had a chance to chat with my old pal Phil Pearlman, who's the Chief Behavioral Officer at Osprey Funds.
Phil and I have been talking markets regularly for over a decade, both behind the scenes and on YouTube.
Never in our wildest dreams did we think we would be here today discussing on-chain analysis of crypto currencies. But here we are!
In today's video we discuss two of my favorite gauges of sentiment, the exchange balances and the dormancy rates. We also touch on the current breadth in crypto markets as the percentage of coins breaking out to new 30 day highs continues to expand.
What we do here is take a chart that’s captured our attention, and remove the x and y-axes as well as any other labels that could help identify it.
This chart can be any security, in any asset class, on any timeframe. Sometimes, it’s an absolute price chart. Other times, it’s on a relative basis.
It might be a ratio, a custom index, or maybe the price is inverted. It could be all three!
The point is, when we aren’t able to recognize what’s in front of us, we put aside any biases we may have and scrutinize the price behavior objectively.
While you can try to guess the chart, the point is to make a decision…
So let us know what it is… Buy, Sell, or Do Nothing?
