From the desk of Steve Strazza 

Our Top 10 report was just published; our weekly report highlighting the best 10 ideas and respective charts we are seeing across the markets this week. One idea and chart that really has our attention is Emerging Markets overlaid with The CRB Index.

Emerging Markets hit new all-time highs last week. This is supportive of the bullish action we’re seeing from stocks in other regions of the globe as well as economically-sensitive commodities. It is no coincidence that the Emerging Markets ETF $EEM and the CRB index tend to peak and trough in unison throughout history. They relay a similar message of “risk-on.” The big question now is whether it’s time for Commodities to play catch-up with Emerging Markets.

From the desk of Willie Delwiche.

Key takeaways:

• Both sales and earnings coming in better than expected
• Rising bond yields and higher inflation put pressure on valuations
• Excesses unlikely to be unwound while breadth remains strong & surprises are to the upside

Nearly three-quarters of the stocks in the S&P 500 have issued Q4 2020 earnings reports. The results have provided some cause for celebration. Earnings are now seen as rising 3%, versus an expected decline of 10% as of Dec. 31st. This is not strictly a function of shifting costs, write-offs and other methods of financial engineering. Sales in the quarter have surpassed expectations by more than 3%, the largest amount on record (going back to 2008). This eclipses the previous record which was set in Q3 2020. Companies in the S&P 500 have weathered the COVID-crisis much better than analysts had expected and that is being reflected in stock prices.

From the desk of Willie Delwiche.

Key Takeaway: There is ample evidence of investor complacency, optimism, and aggressive risk-taking.

The behavior of the broad market (another breadth thrust last week and the weekly NYSE + NASDAQ new high list is at its highest level ever) suggests some of this may be justified.

Sentiment is likely to become a more acute headwind when rally participation narrows and/or optimism remains elevated in the face of market volatility.

For now, optimism has been revealed as a mile wide but only an inch deep, with concern rising the moment the market stops rallying.

From the desk of Willie Delwiche.

Key Takeaway: Financials & bond yields finished last week at new recovery highs.

They were joined by the most stocks ever on the NYSE + NASDAQ making new 52-week highs.

Small-cap leadership is intensifying as stocks reflect better than expected earnings and optimism about the path of economic growth.

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.

Willie tweeted this morning and made reference to some of the staggering median stock performance numbers off the 52 week lows. Again, not a lot of context here but some of these numbers are very eye opening. IWC (Micro caps) are +175.8% off the 52 week lows!

From the desk of Willie Delwiche.

Allowing fundamentals to select your universe and technicals to dictate your action can increase the odds of success.

The Value & Momentum ETF (VAMO) has a small/mid-cap value bias with a momentum factor overlay.

This is the video recording of the February 11th Town Hall Meeting w/ Willie Delwiche & JC Parets.

02/11/21 2PM ET

This is the video recording of the February 4th Town Hall Meeting w/ Willie Delwiche & JC Parets.

02/4/21 2PM ET

This is the video recording of the January 28th Town Hall Meeting w/ Willie Delwiche & JC Parets.

01/28/21 2PM ET

Years ago, early in our marriage, my wife and I went to a car dealership with her dad to make one of those all important, young couple purchases: a new car.

While my wife and her father were chatting with the salesman, I was all over the car pushing every button, pulling every lever and opening every compartment. I wanted to know what was what, where things were, and how it all fit together. The three of them were a bit taken aback as I moved from the front seat to the back, methodically finding knobs and uncovering compartments that the salesman didn’t even know existed.

Our marriage survived that episode and I've got a great relationship with my father-in-law but we didn't buy the car.

I am a tinkerer by nature. My dad once rebuilt a motorcycle engine in the living room of the small apartment he shared with my mom shortly after they were married. The point is, I like to know how things work. I'm not afraid to pull something apart, look at the insides, and then put it back together. I always use all the screws and only rarely does a spring or ball bearing go missing.

It's late-January. We've rung in the New Year. Christmas decorations are put away. We're settling into the late winter slog of cold & snow.

In my reading on this morning (a cold & snowy one in Milwaukee), I came across the following passage:

"You see, Rodya, to make a career in the world , it's enough, in my opinion, if you always observe the season; don't ask for asparagus in January, and you'll have a few more bills in your purse; the same goes for this purchase. The season now is summer, so I made a summer purchase. . ."

It's from "Crime and Punishment" by Dostoevsky. Since it's a Russian novel, explaining exactly who is talking, who is being spoken to, and the overall context would take too much time. But I'm quite sure that we can look at what is being said on its own and glean some wisdom.

It's not a new chart - in fact it makes the rounds on a fairly regular basis.

The iteration I saw this week showed the relationship between global money supply, stocks and high yield bonds over the past five years. The trend for all three was the same - up and to the right, with early 2021 bring a fresh round of new highs.

For whatever reason, my first thought on seeing this version was that Wu-Tang Clan had it right all along.