From the desk of Willie Delwiche.

Key Takeaways:

• Even with stimulus, the economy on a bumpy road
• Bottlenecks testing the resiliency of recovery
• Despite stress points, growth heading in a favorable direction

Apparently, there is a ship stuck in the Suez canal. Pictures show the “Ever Given” container ship turned sideways in the narrow waterway, with its bow wedged on one bank and its stern close to the other bank. This ship, according to the Wall Street Journal, is one of the largest in the world. It’s 400 meters long (longer than the Empire State Building is tall) and can normally move 20,000 containers. In the current situation not only is it not moving its 20,000 containers but has ground to a halt all traffic in both directions in one of the world’s busiest waterways. On average, 55,000 containers travel through the canal on a daily basis, in addition to numerous ships carrying oil and liquified natural gas. The goods are there, but they are not moving.

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From the desk of Willie Delwiche.

Key takeaway: After a healthy unwind over the past few weeks that allowed sentiment to reset to neutral, we are seeing optimism rebuild. This uptick in optimism has been accompanied by (as we show in our chart of the week) another breadth thrust. There is room for a further expansion in optimism before it becomes an excessive headwind - and continued broad market strength diminishes such a signal in any event. The combination of breadth thrusts and persistently elevated optimism is reminiscent of the late-2016 to early-2018 period. Then, equity ETFs saw 20 consecutive months of in-flows - we are currently in our 10th consecutive month of inflows (although the pace is quickening, with a record $100 billion over the past four weeks). Equities ran into trouble in early 2018 when breadth thrust tailwinds subsided but elevated optimism remained.

Sentiment Chart of the Week: Another Breadth Thrust 

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From the desk of Willie Delwiche.

Key Takeaway: Small-caps hit pause but remain market leaders. Another breadth thrust shows rally participation remains robust. Bond yields are digesting recent rise, but the path of least resistance remains higher.

The Technology sector continued its descent toward the bottom of the relative strength rankings. It dropped to its lowest ranking since mid-2016 and fell out of the sector leadership group (which based on a three-week smoothing of the current ranking) for the first time in two years. Technology is joined in the cellar by Utilities, Consumer Staples and Consumer Discretionary. Cyclical value leadership remains intact. Even though small-cap groups led the way lower last week, our industry-group rankings continue to show leadership from small-caps and mid-caps.     

From the desk of Steve Strazza 

Don't miss this weeks Momentum Report; our weekly summation of all the major indexes at a Macro, International, Sector and Industry Group level. As a reminder, we analyze this shorter-term data within the context of the structural trends at play.

From the desk of Willie Delwiche.

The recent uptick in US Treasury yields has not been confirmed by other areas of the bond market (specifically Bunds & JGBs). Bonds at this point are extremely oversold and sentiment indicators are pointing to excessive pessimism. The caveat is that bonds are in a bear market and so this sort of behavior should not come as a surprise. Still, there may be some room for yields to consolidate or even pullback from here. If that happens, it could provide a chance for gold to gain some traction. Gold & bonds have moved similarly in recent years, though gold has started to firm up even as bonds sold off this week. What sort of retracement of their recent weakness either bonds or gold can achieve remains to be seen - but an opportunity for that may be emerging.

From the desk of Willie Delwiche.

Earlier this week JC referenced the 1966 Western “The Good, the Bad, and the Ugly”. Labelled a “Spaghetti Western” because it was directed by Italian director Sergio Leone, the movie and the genre overall have become cultural icons. Little did JC know that I had just watched this movie with my son within the past week (much the way that I had watched it with my father when I was growing up). Beyond just seeing the market metaphor in the movie’s title, the reference had the movie’s theme music again ringing in my ears. 

It’s been a volatile week from a sector level performance perspective, but this is still how I am looking at the market:

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.

How Dangerous Are These Divergences?

Let’s play a little devil’s advocate. Do you know what a common characteristic of market tops is? Failed breakouts. We see them everywhere at significant peaks - just look back to February of last year, there were plenty of textbook examples. The Russell 2000 just printed a failed breakout and confirmed a bearish momentum divergence as price sliced below its February highs. Making matters worse, RSI couldn’t even register an overbought reading with the most recent highs.

So, how serious is this? While anything can happen and this could certainly be the beginning of a significant selloff, that’s not what the broader evidence suggests. This is likely a garden variety correction at worst. And after the recent...

This is the video recording of the March 18th Town Hall Meeting w/ Willie Delwiche & JC Parets

03/18/21 2PM ET

From the desk of Willie Delwiche.

Key Takeaways:

• Commodities prices are encouraging sign of growth rather than troublesome indicator of inflation
• Despite hiccups global economic recovery gains traction
• Bonds could test Fed’s willingness to let economy run hot

Rising commodity prices are getting plenty of attention right now, with most of the focus being the inflationary impacts of these recent moves. For context, the CRB commodity index was hitting two-decade lows this time last year as economic uncertainty spiked amid COVID-related shutdowns. Now, with fiscal stimulus providing liquidity and the Fed hoping for the opportunity to let the economy run hot, commodities across the board have broken out to new multi-year highs. Copper bottomed in March 2020, completing a 40% decline from its early 2018 peak (and matching its 2016 low). It has since doubled, reaching its highest level since 2011. Oil prices are back to where they peaked in 2019 and lumber prices are three...

From the desk of Willie Delwiche.

Key takeaway: Investor optimism has been unwinding even as indexes have moved into record territory and breadth remains strong (NYSE new high list at its highest level since 2004). This week’s featured chart shows the spread between institutional and individual sentiment collapsing. This has tended to occur ahead of market strength, not weakness. While the risks from a strategic positioning perspective are undiminished (especially in the context of valuations and household equity exposure), the short-term and intermediate-term sentiment picture has improved in recent weeks as optimism has come off the boil. It looks to me like investor sentiment has moved off of the risk side of the scale and the weight of the evidence is turning more constructive not more cautious.

Sentiment Chart of the Week: Sentiment Spread, II less AAII

The current intensity of the advisory services move toward a cautious stance matched with a rise...

From the desk of Willie Delwiche.

Key Takeaway: New high lists are expanding, yet investors are turning more cautious. Weight of the evidence favors focusing on opportunity over risk. Commodity market strength encouraging development for economy and investors. Rotation to cyclical leadership has just begun.

Energy has climbed to the top of our sector-level relative strength rankings, occupying the number one spot across all three capitalization levels. Energy hasn’t been at the top of the rankings since mid-2018. We are also seeing sector-level leadership (again across all capitalization levels) in Financials, Materials and Industrials. Previous leaders continue to drop in the rankings as “quality growth” has fallen out of favor. Stubborn investors are sitting on their hands, adaptive investors are listening to the market and following these new leadership trends. Industry group rankings show small-cap groups dominating the top of the rankings, and large cap groups dominating the...

From the desk of Steve Strazza 

Don't miss this weeks Momentum Report; our weekly summation of all the major indexes at a Macro, International, Sector and Industry Group level. As a reminder, we analyze this shorter-term data within the context of the structural trends at play.