From the Desk of Willie Delwiche.

The market has been focused on the headline CPI and eager to declare the inflation battle won. The Fed is less concerned with changes that are fueled by outliers and focuses more on the central tendency and underlying trend in inflation. The median CPI in January posted its third largest 1-month change on record and the 12-month change climbed to a new high. So long peak inflation - we hardly knew you.

Why It Matters: With the market focused on the pullback in headline inflation, bond yields pulled back from their recent highs expectations of rate cuts later this year became more widespread. As it has become clear that the Fed is focused on still-persistent underlying inflation, the market has had to play catch-up. Fed funds futures now match the Fed’s expectations that rates will finish this year above 5% and today for the first time in 15 years we have Treasury yields with a 5-handle. While inflation expectations are on the rise and the underlying trend in yields remains higher, we are not seeing signs of macro-related stress. That keeps the path of least resistance...

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.

The 30yr Retests Prior Cycle Highs

The US 30yr yield refuses to break below its prior cycle highs. This is a logical level for yields to find support and churn sideways which could mean more messy action for long-duration assets such as bonds and growth stocks.

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:

• This week, our macro universe was negative, with 85% of our list closing lower with a median return of -1.05%.
• The Volatility Index $VIX was the winner, closing with a 12.00% gain.
• The biggest loser was Lumber $LB, with a weekly loss of -16.05%.
• There was a 4% drop in the percentage of assets on our list within 5% of their 52-week highs – currently at 13%.
• 9% of our macro list made fresh 4-week highs.
• ...

The Value Line Geometric Index peeked above its August high but it continues to struggle with sustaining strength. We don’t have evidence at this point of that being a meaningful peak but for now this proxy for the performance of the median US stock is trodding across well-traveled ground.

More Context: The Value Line Geometric index has a penchant for living between round numbers. In the years prior to COVID, it moved up from 500 to 600 and back down to 500. During 2020, it dropped to 300 before recovering and settling in beneath 500. A break above that level led to a quick test of 600, Further strength carried it to 700 in late 2021. It paused at 600 before spending most of last year moving back and forth between 500 and 600. After a strong start to the year for stocks, some near-term consolidation (especially in the US) would not be surprising. If recent patterns hold, that could mean the Value Line Geometric Index moving back toward 500. If that scenario is going to play out, we are likely to see more...

From the Desk of Willie Delwiche.

Nearly three-quarters of the way through Q4 earnings season, two things stand out: stocks that have reported earnings misses have been less severely punished than in the past and an increasing number of companies are having their earnings estimates for the coming year revised higher. 

Why It Matters: This earnings season has hardly been spectacular and the percentage of companies beating estimates has been below average. Aggregate earnings numbers may (or may not) need to be revised lower as we move through 2023. But at this point, the worst case scenarios are not playing out and that has left plenty of folks offsides. Investors have moved to embrace the strength we have seen so far in 2023 and analysts are running higher numbers through their models. After seeing fewer and fewer upward revisions to earnings estimates in H2 2021 and H1 2022, the trend stabilized over the second half of last year and for now is ticking higher. The market doesn’t tend to get into too much trouble when analysts have...

This is the video recording of the February 9th, 2023, Weekly Town Hall w/ Willie Delwiche.

2/9/23 2:00 PM ET

From the desk of Willie Delwiche.

Bulls on the Investors Intelligence survey continued to climb while bears fell for the fifth week in a row. The bull-bear spread has now decisively cleared its August high as investors move to embrace the stock market rally.    

Why It Matters: One of the missing ingredients for sustained stock market strength last year was the embrace of investors. To be fair, investors did not abandon equities from a positioning perspective and, in fact, during the record stretch of more bears than bulls on the AAII survey, equity ETFs have still seen nearly a quarter-trillion dollars of inflows. Nonetheless, rally attempts last year brought neither broad market strength (in the form of new highs > new lows) nor a meaningful expansion in optimism. In 2023, investors are seeing strength and believing that it can persist. That can become a self-fulfilling prophecy (at least for a while). Almost all of the net gains in the S&P 500 since 2015 have come with the bull-bear spread above 18.

In this...

From the desk of Willie Delwiche.

The macro factors are all bearish and the market factors are all bullish. It is true that after a bottom market conditions will tend to improve ahead of macro conditions. But it is also true (and we had ample evidence of this last year) that market conditions are subject to false starts. In those situations embracing unsustainable strength can penalize investors. This a trust but verify environment in which indicators of sustained trend have more weighting than one-off signals of opportunity. With the weight of the evidence balanced between risk and opportunity, this may be a time to move toward benchmark exposure,  while focusing on areas of relative leadership and absolute strength.

Our Weight of the Evidence Dashboard fills in the details and includes a few charts that have our attention heading into February. 

From the desk of Willie Delwiche.

Dynamic Portfolio Update: With the weight of the evidence improving, we are putting some cash to work in the cyclical portfolio while also staying well-positioned for opportunities from a tactical perspective. In both portfolios we are leaning toward strength that we are finding in equities beneath the surface and beyond our borders.

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.

Reclaiming a Valuable Line

From an information standpoint, the Value Line Geometric Index (VLG) is one of the best tools we have at our disposal as it represents the median stock’s performance. Seeing this index make a higher high as it reclaims its prior-cycle highs from 2018 and peak from last August is a major bullish development.

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:

• This week, our macro universe was negative, with 57% of our list closing lower with a median return of -0.16%.
• The Dow Jones Transports $DJT was the winner with a 7.15% gain.
• The biggest loser was Oil $CL, with a weekly loss of -7.89%.
• There was a 4% gain in the percentage of assets on our list within 5% of their 52-week highs – currently at 17%.
• 36% of our macro list made fresh 4-week highs, and 36% made new 13-...

The number of stocks making new lows remains negligible. Last week, the number of stocks making new 52-week highs on the NYSE + NASDAQ surpassed a number of prior peaks (Dec 2021, Apr 2022, Nov 2022). It’s now at its highest level since November 2021.

More Context: Everyone has their own definition of a bull market. For me, it’s when more stocks are making new highs than new lows. Bear markets tend to end when new lows drop below new highs. Bull markets are sustained when new high lists expand. We are seeing that now among individual stocks and we are seeing that at the industry group level (especially outside of large-caps). In moving from 2022 to 2023 we have transitioned from broad weakness to broad strength. Big day-to-day price swings haven’t gone away, but after volatile years (like we experienced last year) that can be slow to ebb. Most of the strength that looks sustainable is happening beneath the surface of the popular benchmarks or beyond the borders of our country. It’s a new year with new...