From the desk of Willie Delwiche.

Key Takeaway: Investors finding themselves with too much Technology exposure. Speculative unwind occurring as neglected areas of the market make new highs. Inflation concerns are overdone in the near term but represent a new reality for the coming decade.

Cyclical value sectors remain atop the relative strength rankings, with Financials and Materials (both of which made new highs last week even as the S&P 500 overall lost ground) holding on to the top two spots. The big gainer in this week’s rankings is Consumer Staples, which climbed three spots in the relative strength rankings. Staples also finished the week at a new high. The industry group heat map shows improving conditions widespread among large-cap groups and deteriorating conditions widespread among small-cap groups. Actual leadership is pretty consistent across sizes and is consistent with the sector rankings.

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.

A few weeks ago, we put out what you could call a “lower conviction” trade idea in Gold Miners. The reason we did this was simple and boiled down to two things: 1. The risk/reward profile; and 2. The primary trend. The prior was simply too good to ignore as price tested a formidable level of former resistance turned support. And this was taking place within the context of an underlying uptrend. Fast forward to today, and that trade has worked out beautifully (see lower pane).

What’s interesting is that Treasury Bonds are now setting up with a very similar chart formation after grinding steadily back down toward the 2016 and 2019 highs, where prices are now. The question that remains is whether buyers dig in and defend this key former resistance level near 113. They have so far… And just like GDX, the risk/reward here is too good to pass up and...

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. We can then put these near-term developments into the context of the big picture and glean insights into 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.

• Procyclical Commodities gave back some of their recent gains this week.
  • Copper was down over 2.34%. However, the primary trend remains intact with momentum in a bullish regime.
  • Lumber was the hardest hit this week, dropping over 7% reversing its extreme momentum reading from last week to 64 this week.
• New short-term lows across the board in many US equity indexes, from the S&P to Dow Utilities, and even SMIDs...

From the desk of Willie Delwiche.

The one chart is actually two charts this week. On the left is the S&P 500 and the percentage of stocks in that index that are above their 200-day average (90%). On the right is the NASDAQ Composite and the percentage of stocks in that index that are above their 200-day average (50%). The contrast could hardly be more stark. Even as weakness has been seen in some of the largest sectors (like Technology), the S&P 500 is being supported by ongoing strength in cyclical values areas. The NASDAQ has little to no exposure to those sectors that are doing the best right now and is bearing the brunt of speculative excesses being unwound (the collapse in equity call options is evidence of this shift).

From the desk of Willie Delwiche.

I planted most of the vegetables for the garden over the past couple of weeks. Seeds and seedlings. Neat rows and clustered groups. Into the raised beds they went.  

I don't know what the day to day (or week to week) fluctuations in the weather will be. But I do know that it is (finally) Spring. Planting as the air temperature rises and our daylight hours expand increases the likelihood of a bountiful garden later this summer. Leafy greens (kale, arugula, chard) were the first into the soil. They can withstand cooler temperatures than the cucumbers, peppers and tomatoes.

As a gardener, I have some understanding of the underlying trends and conditions that guide the seasons. Plant too soon and a late frost will kill off tender seedlings. Plant too late and the summer heat will sap the strength of plants without well-developed root systems. 

It's about knowing the growing environment, managing temperature risks and finding opportunities to increase vegetable production.

Some might dismiss this as a farmer’s market timing. I call it prudent.

This is the video recording of the May 13th Town Hall Meeting w/ Willie Delwiche & JC Parets

05/13/21 2PM ET

From the desk of Willie Delwiche.

JC and I were talking about the market last week in one of our town hall meetings.

"It's a market of stocks," he said, offering up the old Wall Street adage about looking at market health by looking beneath the surface. 

I don't dispute the wisdom embedded in that comment. It's an adage for a reason.

But my response to JC was, "No, it's a market of sectors." 

Let me explain… 

From the desk of Willie Delwiche.

Key Takeaways:

• Inflation surprise points brings new pressure on portfolios tilted toward yesterday
• With bond & stock returns more likely to struggle, expand investment opportunity set
• Commodity exposure poised to do well as inflation picks up and yields rise

The headlines are filled with stories of higher prices for pretty much everything (have you tried to buy a used car recently) and our charts show widespread strength in commodities (beyond just the headline grabbing moves in lumber and copper. Still, this morning’s CPI report managed to surprise many. The headline CPI was up 0.8% in April, versus an expected increase of 0.2%, and the core CPI was up 0.9% in the month, versus an expected increase of 0.3%. That was the largest monthly increase in the core CPI since 1982. The core CPI is now up 3.0% over the past year, the largest such change since 1996. While this may be due in part to various...

From the desk of Willie Delwiche.

Key takeaway: A peak within the NASDAQ (or the Technology sector) shows that pockets of speculative excesses are being unwound. There has been enough strength in the market elsewhere, as well as a still favorable earnings and economic data backdrop, to keep investors generally optimistic. In March, market volatility allowed optimism to retreat from excessive levels but not completely unwind. We may be seeing early indications that the current bout of volatility will have a more substantial impact on investor psychology. If so, the price reaction will likely not be as benign as was seen two months ago.

Sentiment Report Chart of the Week: Unwinding Speculative Fervor

The Nasdaq has been the leader off the March 2020 lows during the speculative beta chase that ensued. However, excessive optimism has come off a full boil and it shows in pockets of breadth deterioration seen in the former leader. While more than 40...

From the desk of Willie Delwiche.

Key Takeaway: Stocks looking at a year two market. Stocks looking at a year of two markets. Economic surprises remain a tailwind for now but data struggling to keep up with expectations.

Cyclical value sectors remain in their leadership positions. New highs last week in Materials, Industrials & Financials helped pace the market, and rally participation with these sectors remains robust. The rotation out of leadership from the growth sectors can make it a challenging environment for passive investors. Technology, Discretionary, and Communication Services make up 50% of the market cap of the S&P 500, and the index could struggle to see sustained strength if these areas are not participating. Defensive areas like Utilities & Consumer Staples are buried at the bottom of the rankings. 

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. We can then put these near-term developments into the context of the big picture and glean insights into 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.

• Procyclical Commodities led again this week.
  • Copper was up over 6.41% and closed the week at fresh all-time highs.
  • Lumber had another monster week, gaining over 12% but is at an extreme daily momentum reading of 91.
• The biggest loser of the week was the Volatility index falling over 10%
• New highs continue to be the theme across all timeframes, particularly from...