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.

High Yield Holds The Line

Below is a chart of the S&P 500 overlaid with the High-Yield Bonds versus Treasuries ratio. HYG/IEI is one of our favorite ways to analyze risk appetite. As you can see, the ratio has been building a topping formation since last year and has threatened to violate the lower bounds on many occasions. Last week was no exception as we saw more selling pressure, but ultimately, buyers regained control and successfully defended this level. Seeing this relative trend hold is solid evidence that this is a tradable low for US equities.  Falling prices for the HYG/IEI ratio tends to coincide with volatility for risk assets while a rising ratio is normal during bull market environments. Since last year, this ratio hasn’t given us much information as it has been trending sideways in a range. But with so many risk assets resolving lower recently, the fact that it continues to hold its range is one...

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 green as 60% of our list closed higher with a median return of 0.44%.
• Lumber $LB was the winner, closing with a 3.34% gain.
• The biggest loser was Emerging Markets $EEM, with a weekly loss of -2.81%.
• There was a 9% gain in the percentage of assets on our list within 5% of their 52-week highs – currently at 26%.
• 21% of our macro list made fresh 4-week highs, 9% made new 13-week...

From the desk of Willie Delwiche.

Key Takeaways:

• In an effort to fight inflation, the Fed is likely to accept volatility but will be wary of stress.
• Equity market trends are deteriorating.
• Preserve capital and sanity - market doesn’t hand out participation medals.

Offsetting this likely need for more aggressive tightening is the potential for sanctions to strain the financial system in unexpected ways. When liquidity gets disrupted signs of stress can emerge. A widening in high yield spreads and/or a breakdown in the ratio between high yield bond and Treasury ETFs would be evidence that volatility is morphing into stress. That could slow the pace at which the Fed tightens and in the process worsen the problem of inflation.

From the desk of Willie Delwiche.

It was certainly a busy week filled with volatility-inducing headlines that produced sharp sell-offs and stunning reversals. And all in just four trading days. Stepping back from the noise, it can be helpful to take stock of what has changed and what has not. One of the things that has not changed, is that on the NASDAQ new lows continue to outnumber new highs. It is true that there were fewer new lows on Thursday than there were at the January low. But for evidence of sustainable improvement, we don’t just want to see fewer new lows, but actually see more new highs than new lows. It has been 35 trading days since that has happened, the longest such stretch since late 2018/ early 2019 (and the second longest stretch since the financial crisis more than a decade ago). When this changes (and at some point it will) we can think about the NASDAQ from a more constructive perspective. Until then, it might be best to remember that the best rallies tend to occur within bear markets and those are best observed from the sidelines.

...

From the desk of Willie Delwiche.

With equity market trends in the US deteriorating, we have reduced domestic equity exposure in our Cyclical and Tactical Portfolios. We are adding equity exposure where we are seeing strength overseas and remembering that asset allocation decisions don't just come down to stocks vs bonds, but include commodities and cash as well.

This is the video recording of the February 24th Weekly Town Hall w/ Willie Delwiche

02/24/22 2:00 PM ET

From the desk of Willie Delwiche.

Key Takeaway: Optimism wanes, and pessimism builds as the II bull-bear spread narrowed last week to just 1.2%, down more than 4% from the previous week. That brings the spread to its smallest difference since early April 2020. But it’s not until bears outnumber the bulls that we reach levels associated with significant market bottoms. Nevertheless, a surge in pessimism could become reality with active equity managers continuing to reduce exposure, consensus bulls dropping, and major equity indexes testing their respective January lows. Whether sentiment has completely unwound or is still in the process of unwinding is yet to be determined.

Sentiment Report Chart of the Week: Unwound or Unwinding

The NASDAQ is getting plenty of attention for the carnage that is occurring beneath the surface. The stat that really sticks out for me is that 95% of the trading days over the past three months have seen more new lows than new highs. That weakness is now hitting the index and while the...

From the desk of Willie Delwiche.

Key Takeaways:

• News headlines exacerbating underlying trends.
• Leadership rotation has accelerated in 2022.
• Time in the market is a waste of time if you are in the wrong market.

While the leaders of the last decade are weakening, the laggards of the last decade are gaining strength. Commodities are making new highs and Energy, which is the worst performing sector over the past 10 years, is the only sector in the S&P 500 in positive territory on a YTD basis. Globally, we are seeing strength and leadership from the rest of the world versus the US. Trends in Emerging Markets versus Developed Markets are as strong as they have been in over a decade. As we see these shifts, staying in harmony with the trend is critical. “Time in the...

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.

Industrials Are On The Ledge

Industrials are currently trading at their lowest level in over 10 months. In the large cap space, there are lots of charts that are still consolidating in the very same ranges they’ve been in since the first-half of last year. Both cap-weighted and equal-weight industrials fall into this category. In order to turn bullish on the broader market, we need to see more areas resolve these ranges to the upside. But in order for that to happen, they need to hold the lower bounds of these patterns in the meantime. As the list of sectors and industry groups that are resolving lower grows, it becomes easier to make a bearish argument for stocks as an asset class. Seeing industrials break down would also be a major development due to their high correlation with the S&P 500. The bottom line is that these ranges need to hold, otherwise we’re likely headed for an environment where the overall...

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:

• Our macro universe was slightly red again this week as 62% of our list closed lower with a median return of -0.27%.
• This week, lumber $LB was the winner, closing with a 7.83% gain.
• The biggest loser was Oil $CL, with a weekly loss of -2.18%.
• There was a 4% drop in the percentage of assets on our list within 5% of their 52-week highs – currently at 17%.
• 15% of our macro list made fresh 4-week highs, 9% made new 13-...

From the desk of Willie Delwiche.

There are plenty of ways in which we make our lives more complicated. There’s an endless list of things we could look at that would obscure our perspective. If I’ve learned anything in nearly a quarter century in this business, it’s that simple trumps complicated and clarity beats obscurity. That’s what makes this week’s one for the weekend so lovely. The 48 markets that make up the ACWI can be summed up in seven charts: 3 regional composites and 4 individual countries. A single slide provides a great starting point for identifying new opportunities and increasing risks on a global scale. The message now is straightforward. The UK and Canada have broken out on a relative basis and EM looks like it wants to. The US has pulled back to an important juncture and the rest of the world remains messy. (Shout out to Grant for putting this global dashboard together.)