Key Takeaway:

• Getting back to “Yes” on our Bull Market Re-Birth Checklist still requires some heavy lifting.
• Beneath the surface, stocks are getting back in gear.
• The Fed isn’t a friend and overcoming higher bond yields could be a challenge for stocks.

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.

Finding Support with Fibonacci

US equities appear to be regaining ground after giving back some of their gains from this summer. Following the corrective action of the last few weeks, the Nasdaq 100 ETF has finally found support at the 61.8% Fibonacci retracement level of the June-to-August advance. These levels represent a logical place for demand to show up and halt prices from falling further. We’re watching closely to see what kind of follow-through we get in the coming days. If this was really the bottom, we should see a higher high in the near future. On the other hand, a break below 294 would signal increased downside risk and likely lead to a retest of the June lows. From a tactical standpoint, this is our line in the sand for the Nasdaq 100.

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.

Macro Universe:

From the desk of Willie Delwiche.

Inflation data has overtaken jobs data as the economic indicator that seems to generate the most interest every month and next week’s CPI report will be no different. But seeing inflation just from a post-COVID perspective misses the point. It’s not about prices for used cars or gasoline or shipping containers. Those might be in the headlines but they aren’t the news. The match was struck when the Fed was cutting rates in H2 2019 with wage growth and median CPI inflation at their highest levels in a decade and more job openings than unemployed workers for the first time ever. That reality got lost during the COVID shut-down & re-opening. All the stimulus that followed was fuel for the fire. The Fed made a policy error in 2019. The Fed compounded that error by mis-reading the situation and remaining complacent through 2021. All that being said, we may very well be nearing peak inflation. Inflation needs to stop going up before it can start going down. But it having stopped going up doesn’t mean that it has started going down in a meaningful way.

This is the video recording of the September 8th, 2022, Weekly Town Hall w/ Willie Delwiche.

09/08/22 2:00 PM ET

From the desk of Willie Delwiche.

This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard and our Playbook Chartbook, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

After reviewing the Cyclical Portfolio, we are making the active decision to sit on our hands for now. In the Tactical Opportunity Portfolio, we've made a couple of tweaks. We are seeing "Higher for longer" resonate with the bond market and are increasing exposure to one of the few areas that is actually still in an uptrend.

From the desk of Willie Delwiche.

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.

Macro Universe:

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.

Structural Trends Shift in Favor of Value

We just got fresh monthly candles for August last week. When we look at a monthly line chart of the growth vs value relationship, it’s hard to see anything but a recently completed double top formation and successful retest from below. The fact that this bearish reversal pattern is occurring at a critical level of interest at the dot-com bubble highs makes this price action even more significant. As long as this distribution pattern remains valid, we’re anticipating a structural reversal in this relative trend that favors value. And as shown in the upper pane, as far as the major averages are concerned, this means we want to overweight the value-heavy Dow Industrials and underweight tech-heavy indexes such as the Nasdaq 100.

From the desk of Willie Delwiche.

The late-July breadth thrust provides a breadth thrust regime that lasts for a year (or more if we get additional breadth thrusts between now and mid-2023). In such an environment, near-term oversold conditions tend not to persist and, in fact, reverse quite quickly. One way of measuring this is to look at the percentage of world markets trading above their 50-day average. Anything above 70% is pretty good participation, whether we are in a bullish breadth thrust regime or not. Below 40% is a different story. Without a breadth thrust as support, the S&P 500 struggles to make headway when the percentage of world markets above their 50-day average collapses. But within breadth thrust regimes, it signals an oversold condition that leads to strength. 

The percentage of world markets above their 50-day average was at 90% in mid-August and is now down to just 25%. The recent breadth thrust suggests that rather than a red light arguing for caution, the signal now is a greenlight encouraging exposure.