Key Takeaway: Recent laggards bounce into lead. Economic reports add noise to an otherwise quiet week. New highs for Value Line Geometric Index and Commodities would help confirm cyclical strength.

• The Financials sector bounced back in the rankings last week, climbing three spots and moving into the second spot overall. Strength within the sector is broadly based as it is at the top of the rankings from an equal-weight perspective.
• Thanks to FB and GOOGL, the Communication Services sector is in the top spot on a cap-weight basis. On an equal-weight basis it ranks below everything except Consumer Staples.
• At the large-cap level, Transports are near the bottom of our industry group rankings. Mid-caps however, are showing strength and small-caps are improving. 

From the desk of Steve Strazza @Sstrazza

Our Top 10 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.

Whipsaws Around The World

One of the most common characteristics of choppy markets are whipsaws. The chart below is a great example of this kind of price action, and we’re seeing it all over the place of late. Many risk assets recently violated key levels of support, but ultimately repaired the damage and reclaimed them. This type of action continues to reiterate that while the market is bending, it’s not breaking. The list of new lows in our internal breadth metrics remains muted, and critical indices and commodities, such as Energy, continue to hold their heads above important levels.

There’s an old adage that “from failed moves come fast moves in the opposite direction." Is this what could spark the next leg higher for the market? Time will certainly tell, but it’s leaning in that direction, at least in the near term.

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From the desk of Steve Strazza @Sstrazza

Check out this week's Momentum Report, our weekly summation of all the action from 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 context of the big picture 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 performance was positive across the board this week, as 81% of our list closed higher with a median return of 1.57%.
• The biggest winner of the week was Oil $CL, which gained 10.30%.
• Meanwhile, the week's worst performer was the Volatility Index $VIX, which fell by -11.69%.
• Several US Large-Cap indices finished the week at all-time highs.
• Oil $CL posted a bullish reversal week.
• Only about half...

From the desk of Willie Delwiche.

While what’s happening beneath the surface in US markets is a bit frustrating, we are seeing evidence of improving breadth on a global basis. Just shy of 75% of ACWI markets are trading above their 50-day averages, the highest level in more than two months. For comparison, 63% of S&P 500 stocks are above their 50-day averages. Broad global strength is important for the S&P 500 (especially given the current lack of a breadth-thrust backdrop) and could be critical if global equities are going to move into a leadership position as we move toward the end of 2021.

This is the video recording of the August 26 Town Hall Meeting w/ Willie Delwiche

08/26/21 2PM ET

 

From the desk of Willie Delwiche.

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.”  

 

Sentiment Report Chart of the Week: New lows in new highs

Indexes are making new highs, but beneath the surface the case for more caution on the part of investors makes more sense. There are many ways to describe the deterioration that’s been...

From the desk of Willie Delwiche.

As we've still yet to see a decisive shift to a risk-on environment, caution remains the general guiding principle for this market. At the same time, there are opportunities in crypto that we'd like to take advantage of. 

In the Cyclical portfolio, we’re shifting domestic equity exposure from small-caps (IJR) to mid-caps (IJH). Small-caps have been stuck below a now-falling 50-day average for nearly two months, and our industry group rankings show small-cap groups losing relative strength versus both large-caps and mid-caps.

Two things to note in the Tactical Opportunity portfolio update - a change that is being made and one that is not being made. First, we’re putting some cash to work by adding a 5% position to Ethereum (ETHE). Breakouts are being seen across the crypto space, and we want to follow that strength. Second, we’re keeping our exposure to commodities (DBC) for now. We’re giving it the benefit of the doubt, as the longer-term up-trend remains intact.

 

From the desk of Willie Delwiche.

Key Takeaways:

• Emerging Market indexes weighed down by weakness at top.
• Europe & Middle East showing leadership.
• If China is finding a bottom, broad EM strength could support a sustained rally.

Here in the US, a handful of mega-cap stocks are pushing the indexes to new highs, while beneath the surface many stocks are languishing. The NASDAQ Composite began this week by making a new all-time high, but it was the first time in eight days that there were actually more stocks making new highs than were making new lows. The S&P 500 is trading in record territory, while nearly 40% of its stocks aren’t even above their 50-day averages. 

When we look overseas, what’s happening in Emerging Markets is the inverse of what we’re seeing within the US indexes. For EM, the weakness is at the top, in the countries that make up the largest weightings within the EM indexes. China accounts for more than a fifth of the weighting in EM indexes and is down nearly 15% over the past six weeks....

Key Takeaway: Indexes find ways to shrug off disappointment. Beneath the surface, market bending, not yet breaking. Surge in bond yields would sap financial liquidity.

• We saw plenty of volatility in the weekly rankings last week (e.g., Health Care rising from #6 to #2, Financials dropping from #1 to #5) but some underlying trends remain intact: Cyclicals (especially outside of Financials) are lagging and the Communication Services sector may not be quite as strong as its current ranking suggests (on an equal-weight basis, it’s ahead of only Energy).
• The Industry Group heat map shows nine of the top ten groups are either large-cap or mid-cap groups (mostly large-cap). Nine of the bottom ten groups are either small-cap or mid-cap (mostly small-cap). More on this later.

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 context of the big picture 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:

• The broad weakness from risk assets was reflected in our macro universe this week as 77% of our list closed lower with a median return of -0.91%.
• The Volatility Index $VIX was the big winner, closing out the week with more than a 20% gain.
• Meanwhile, the worst performer of the week was Oil $CL, which fell by -8.94%.
  • It was followed closely by another major procyclical commodity - Copper $HG, which dropped -5.80%.
  ...

From the desk of Steve Strazza @Sstrazza

Our Top 10 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.

Key Levels Stay In Play

With more deterioration and choppy action taking place recently, bears are looking at yet another chance to take control. Many critical areas are near the lower end of their respective ranges and once again on breakdown watch.

The rationale is very simple. If bears can’t get it done with all these areas looking increasingly vulnerable right now, it will further enforce the lack of power we’ve seen from sellers in this environment.

If buyers can step in and defend these critical levels in small-caps, regional banks, and copper miners once again, it’s hard to imagine the world is coming to an end. In fact, it would prove incredibly constructive, and would be a new set of data points on the side of the bulls.

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