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 positive, with 51% of our list closing higher with a median return of 0.11%.
• Lumber $LB was the winner, closing with a 25.23% gain.
• The biggest loser was the Dow Jones Utilities $DJU, with a weekly loss of -2.83%.
• There was no change in the percentage of assets on our list within 5% of their 52-week highs – currently at 11%.
• 47% of our macro list made fresh 4-week highs, and 30%...

The S&P 500 has rallied off of its October and December lows, but the 200-day average, which rolled over in April 2022, continues to fall.

More Context: Price trends matter. Over the past 2+ decades, all of the net gains for the S&P 500 have come when the index’s 200-day average has been rising. When the trend has been falling, the index has struggled to keep its head above water. While stocks have begun 2023 in rally mode, they are still fighting a downtrend. Stocks can rally within persistent downtrends. But if stocks keep rallying, down-trends cannot persist. The math just doesn’t work. While we are seeing evidence of a tactically more constructive environment, the longer-term trend backdrop remains challenging. The recent strength has a better shot at being sustained if it can flip some of the longer-term trend indicators to a bullish setting.           

In our Market Notes, we take a closer look at longer-term price trends, recent breadth improvements and paradigm shifts that are...

From the Desk of Willie Delwiche.

Firms are still hiring but with average weekly hours being curtailed, aggregate hours worked appear to have peaked in Q4.

Why It Matters: Talk of a soft landing has intensified, but the data paint a different picture. Real spending peaked in Q1. Housing starts in Q2. Industrial production in Q3. Payrolls are still expanding and layoffs are near historically low levels. Given the structural imbalance between unfilled jobs and unemployed workers, those metrics are unlikely to be useful indicators of what lies ahead for the economy. Don’t even start with the unemployment rate, which has long been considered a lagging indicator. Rather than firing workers who were hard to hire in the first place, firms are keeping their payrolls largely intact. They are responding to softening demand by curtailing hours worked. Payrolls and initial jobless claims are noise in this environment. The news is that the economy is weakening, inflation is lingering, and the Fed is still raising rates.       

This is the video recording of the January 19th, 2023, Weekly Town Hall w/ Willie Delwiche.

1/19/23 2:00 PM ET

From the desk of Willie Delwiche.

Dynamic Portfolio Update: With new highs outpacing new lows every day so far this year, our net new high A/D line has turned higher and moved our "Fear or Strength" tactical model into its bullish zone. We are following the model and increasing risk exposure in the Tactical Opportunity portfolio.

From the desk of Willie Delwiche.

The Investors Intelligence measure of advisory services sentiment shows Bulls rising to their highest level in over a year. Bears have not (yet) undercut their summer lows and the Bull-Bear spread is still just below its August peak.    

Why It Matters: We need bulls to have a bull market. This flies in the face of a desire to only see sentiment from a contrarian perspective. The way I learned it, it pays to go with the crowd until it  reverses at an extreme. After the persistent and excessive pessimism of 2022 (which was certainly present in word if not deed), the best prospects for a sustained rally at this juncture is for investors to shift their attitudes and embrace stocks. A failure for investors to turn more optimistic at this juncture could hasten a longer-term positioning re-balance. We have gotten hints of that in recent weeks as ETF flows show investors eschewing US equities in favor of international equities and fixed income ETFs.  

In this week’s Sentiment Report we...

The shorter-term risk indicators have teased the possibility in recent weeks, but now for the first time in a year, our longer-term Risk Indicator has moved into Risk On territory.

More Context: This risk indicator is made up of 20 (intermarket and intramarket) ratios that pair various risk on and risk off assets. It ebbed and flowed over the course of 2022 but remained in Risk Off territory all of last year. Paired with the turn higher in our net new high advance/decline line, this is evidence of an improving backdrop for risk assets. These are not discrete signals (like so many breadth and momentum thrusts) but are continuous indicators of the environment in which we, as investors, are operating. 

I have long leaned on breadth thrust signals in my work. But with more and more of them popping up all the time, it is now a case of thrust but verify. In contrast to what we saw last year, our risk indicators and the new high vs new low data are providing important confirmation of market strength (as...

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.

Bitcoin Bounces Back!

Bitcoin has been on an absolute tear, gaining roughly 25% since last week and booking seven consecutive up-days. Not only is price reclaiming its prior cycle highs from 2017, but momentum (as measured by the 14-day RSI) is registering its highest reading in two years. As shown in the table, price has also reclaimed its 200-day moving average, ending the second longest streak on record spent below it over the course of 2022.

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 positive, with 85% of our list closing higher with a median return of 2.00%.
• Oil $CL was the winner, closing with an 8.26% gain.
• The biggest loser was the Volatility Index $VIX, with a weekly loss of -13.16%.
• There was a 7% gain in the percentage of assets on our list within 5% of their 52-week highs – currently at 11%.
• 74% of our macro list made fresh 4-week highs, and 45% made...

From the Desk of Willie Delwiche.

Money supply is unchanged over the past year and has fallen at a never-before-seen 5% annualized rat over the past 3 months.

Why It Matters: Money supply growth peaked (on a year over year basis) at 27% in February 2021 as policymakers responded to the COVID crisis by flooding the financial system with liquidity. That growth has now dissipated and over shorter time periods money supply is actually contracting (it was down for the fourth month in a row in November). Collapsing money supply growth helps take the edge off of inflationary pressures in the economy (there is less money chasing all the goods & services). But liquidity is also the lifeblood of the financial markets. As with seedlings in the garden, when the spigot is turned off, green shoots turn brown and asset prices could struggle to flourish.    

This is the video recording of the January 12th, 2023, Weekly Town Hall w/ Willie Delwiche.

1/12/23 2:00 PM ET

From the desk of Willie Delwiche.

Over the course of 2022, the two-year (8-quarter) return for the aggregate household portfolio dropped from one of the highest levels in over 40 years to underwater for the first time in over a decade.     

Why It Matters: Sentiment soured in 2022 but investors largely stuck with their equity exposure. They choose not to meaningfully increase their exposure to bonds or cash (and commodity funds actually experienced outflows last year). Now investors are reviewing portfolios that didn’t just experience a bad year, but are actually down over the past two years. This is unfamiliar territory for a generation of investors who are not used to sustained weakness and who see US large-cap equities as the only game in town. 

2022 was a bruising experience for many and 2023 is an opportunity to put aside broken paradigms and embrace forgotten realities. My expectation is that this leads to overdue discussions about proper diversification and adaptive positioning, across and within asset classes....