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.

Banks Tank

The SPDR Regional Banking Index (KRE) registered its lowest weekly close since January 2021 as it threatens to break down from a topping pattern. In addition, the price is violating its AVWAP from the March 2020 lows, and momentum is hitting oversold conditions. If KRE is below this polarity zone ~58, the path of least resistance is lower, and we should be prepared for a leg to the downside.

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, as 83% of our list closed lower with a median return of -1.66%.
• Crude Oil $CL was the winner, closing with a 4.60% gain.
• The biggest loser was Lumber $LB, with a weekly loss of -5.84%.
• There was a 2% drop in the percentage of assets on our list within 5% of their 52-week highs – currently at 2%.
• 13% of our macro list made fresh 4-week highs, and 11% made new 13-week...

Sector-level trends are deteriorating - every previous time this happened this year, the S&P 500 went on to make new lows. 

More Context: Our sector-level trend indicator looks at momentum, price and breadth trends across the 11 S&P 500 sectors. It captures the breadth of these trends more than the intensity (the table inside the report shows the details). The mix of trends has ebbed and flowed by indicator and by sector this year. But every previous time the composite indicator has dropped below zero since the S&P 500 peaked in January, new lows have followed. If that pattern holds, the S&P 500 could soon find itself testing its October low (which is not what many of the seasonal studies would suggest is likely right now).      

In our Market Notes, we take a Deeper Look at the price evidence arguing for & against a test of the Q4 lows and what that could mean in the context of a challenging longer-term trend environment.

From the Desk of Willie Delwiche.

After unexpectedly good headline and core CPI prints for November, the stocks were caught off guard by unexpectedly hawkish forecasts on both rates and inflation when the Fed released its Summary of Economic Projections following Wednesday’s FOMC meeting.

Why It Matters: The market is used to looking at core CPI as a way to filter out inflation noise. The problem is that core CPI was created with political motives, not for economic clarity. The median CPI is a better tool for discerning underlying trends. Central tendency measures of inflation (like the median CPI) were slower to climb post-COVID but now show inflationary pressure persisting. This helps explain why the Fed is likely to remain in inflation fighting mode longer than the market now expects. The Fed’s record here is not without blemish. Pre-COVID they were overly focused on the core indexes and missed the building of inflation pressure. In 2012, both the median and core CPI showed inflation near 2.3%. Core CPI was still there in the...

This is the video recording of the December 15th, 2022, Weekly Town Hall w/ Willie Delwiche.

12/15/22 2:00 PM ET

From the desk of Willie Delwiche.

Household equity exposure (as a percentage of total liquid assets) fell again in the third quarter dropping from 56% to 54%. It was at its highest level ever (62%) coming into this year and remains high by historical standards (90th percentile).    

Why It Matters: When equity exposure made a new high and then reversed in 2000, it ushered in a lost decade for stocks. The S&P 500 was no higher in late 2012 than it was in early 2000. The same was true in 1968. The S&P 500 was no higher in mid 1979 than it was in late 1968. While stocks were going sideways, household equity exposure was in secular decline. Equity exposure fell from 55% in Q4 1968 to 27% in Q4 1974 (when the S&P 500 bottomed). It dropped from 61% in Q1 2000 to 32% at the stock market low in Q1 2009. From this perspective, 2022 looks less like a one-off decline and more like year 1 of a secular bear market for equities. Opportunities will emerge and fade, but expecting a quick return to the market environment of the...

From the desk of Willie Delwiche.

Portfolio Update: Precious metals have been showing signs of life relative to base metals for some time. For example, the trend in the copper/gold ratio has favored gold 40 weeks in a row. Silver has also gotten in on the action and with it holding above a key level last week, we are adding it to our Tactical Opportunity portfolio this week.

From the desk of Willie Delwiche.

The market’s focus is moving on from monthly inflation prints and toward the health & resiliency of the economy in light of the cumulative tightening by the Fed. Our macro health status report remains mixed, but is holding steady for now.

Why It Matters: Stocks celebrated the release of the November CPI report that showed inflation cooling more than expected. Those early gains have proven hard to hold on to. At this point, peak inflation is a rear-view issue and the path of inflation going forward is more important for the market. It is possible that it retreats quickly, but more plausible that after an initial pullback it stabilizes at a relatively high level. The sticky CPI (published by the Atlanta Fed) actually moved to a new high in November. As the market reckons with the path of inflation, the need for additional rate hikes and the impact on the economy of all this, our health status report will provide a timely assessment of the most important question...

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.

Running Out of Gas

After failing to hold a breakout to new all-time highs earlier this year, gasoline futures have fallen by roughly 50% in the past six months. Last week, both crude oil and gasoline continued their slide by taking out their 2018 highs. As long as energy futures are below these prior-cycle highs, we want to approach the entire sector with caution.

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, as 81% of our list closed lower with a median return of -1.44%.
• The Volatility Index $VIX was the winner, closing with a 19.78% gain.
• The biggest loser was Oil $CL, falling -11.20%.
• There was no change in the percentage of assets on our list within 5% of their 52-week highs – currently at 4%.
• 9% of our macro list made fresh 4-week highs and 6% made new 13-week highs....

The S&P 500 fell 3.4% last week, the 11th time this year that the index was down 3% (or more) in a single week. Only 2008 and 1974 had a larger number of such declines. Paired with the 9 times the S&P 500 has rallied 3% or more in a single week this year, 2022 has now moved ahead of 2009 and is only in third place (still behind 2008 and 1974) with 20 weekly swings of 3% or more in either direction.

More Context: Stock market strength and volatility have been inversely correlated for decades. Volatile years tend to be weak and quiet years tend to be strong. The decline in the S&P 500 last week alone was larger than the largest peak-to-trough decline experienced over all of 2017 (one of the quietest and most consistently strong years in stock market history). This year’s volatility has been accompanied by the smallest percentage of days with more new highs than new lows in more than 50 years. While we are seeing relative leadership shift, persistent strength remains elusive.      

In our ...

From the Desk of Willie Delwiche.

The NASDAQ 100 peaked over a year ago. Its 1-year return dipped into negative territory in April and has been there ever since.   

Why It Matters: The NASDAQ 100 has spent more time underwater (on a trailing 1-year basis) over the past 160 days than it did in the entire time going back to 2010. After a decade of sustained strength and limited duration downturns, investors who are sticking with their growth biases must deal with a challenging new reality. Those  who are locked into one asset class (e.g. stocks over bonds or commodities) or one style (growth over value) or one region (US over the rest of the world) are seeing previously sustained trends move against them. Adaptability across asset class, style and region is likely to be a critical component of investing success as we move into 2023 and beyond. Keep the trend your friend.