From the desk of Willie Delwiche.

Portfolio Update: As mentioned in yesterday's Market Notes, our tactical models are arguing for patience rather than aggressiveness with respect to equity exposure. That being said we want to stay in harmony with relative opportunities as they emerge. While not putting new money to work, we have tweaked the holdings in our Dynamic Tactical Opportunity Portfolio.

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 positive as 79% of our list closed higher with a median return of 1.10%.
• Dow Jones Utilities $DJU was the winner, closing with a 3.48% gain.
• The biggest loser was the Volatility Index $VIX, with a weekly loss of -11.33%.
• There was no change in the percentage of assets on our list within 5% of their 52-week highs – currently at 2%.
• 57% of our macro list made fresh 4-week highs and...

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.

Not All Indexes Are Created Equal

While the Dow (DJI) has rallied nearly 20% off its October lows and retraced more than 62% of its max year-to-date drawdown, the Nasdaq 100 (NDX) is only about 10% above its lows, representing a roughly 20% retracement.

This disparity in index performance speaks to the relative strength from blue chip value stocks as well as the relative weakness from technology. Until we see evidence of this changing, we want to remain overweight value and underweight growth.

Our longer-term risk indicator has been in the Risk Off zone since the beginning of the year. Successive rally attempts have taken it closer and closer to a Risk On signal, but so far it has been unable to break through. 

More Context: This indicator, which is calculated based on where various intermarket & intramarket asset ratios are relative to their 52-week trading range, was the sole criteria on our Bull Market Re-Birth Checklist that did not turn positive earlier this summer and it continues to offer a cautious message. The persistence of more new lows than new highs adds weight to that view. After the latest rally off of year-to-date index lows, there is still little evidence that a sustained turn higher is in the works. Fear has been relieved but strength is struggling to emerge. Our tactical models suggest that expecting price bounces to persist is defying history. There are pockets of opportunity, but this remains an environment for selective equity exposure not broad buying and longer-term...

From the desk of Willie Delwiche.

The S&P 500 just experienced its longest stretch without a 1% daily swing since Thanksgiving week 2021. But moving from volatility to calm is just part of the needed rotation. It will be difficult for bulls to stay optimistic if the market is not able to rotate from weakness to strength.   

Why It Matters: Some of the most challenging years for the stock market in the past half century have had a combination of weakness and volatility similar to what has been experienced in 2022. The best gains have tended to come in years when the market has been calm and strength has been persistent. 2017 is a prime example of this. The recent ebbing in volatility provides some hope that conditions are improving and that the experience of the first three quarters of 2022 is receding into the past. The odds of a better market environment are greater on a shift from weakness to strength than from volatility to calm.  

In this week’s Sentiment Report we take a closer look at the rise in...

From the desk of Willie Delwiche.

The yield curve is getting a lot of attention right now, and deservedly so. An inversion in the spread between the 10-year and 3-month Treasury yields has an unblemished record in anticipating recessions. But beyond that suite of indicators, there is actually evidence that macro conditions have stopped deteriorating.      

Why It Matters: Despite a recent lull in day-to-day price swings, 2022 has been one of the most volatile and weakest years for stocks in the past half century. Whether those trends persist into year-end or strong post-midterm election seasonal tendencies have investors feeling less bruised and battered by year-end likely depends on macro conditions. This is not a question of whether conditions are good or bad, but whether they are getting better or worse. Since last month our Macro Health Status report has actually improved. More favorable corporate bond yield momentum and stability in the earnings momentum trend have helped offset the yield...

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.

Energy and Crude Diverge

Crude oil (CL_F) and energy stocks have been trending in different directions since this summer, but the gap between the two has become more pronounced during the trailing month. We’ve included the 100-day rolling correlation, illustrating how rare such a prolonged dislocation is. With the Energy sector XLE failing to hold above its June highs this week, this divergence becomes a more-concerning datapoint for energy bulls.

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, with 79% of our list closed lower with a median return of -0.54%.
• The Volatility Index $VIX was the winner, closing with a 2.66% gain.
• The biggest loser was Oil $CL, with a weekly loss of -9.98%.
• There was no change in the percentage of assets on our list within 5% of their 52-week highs – currently at 2%.
• 15% of our macro list made fresh 4-week highs.
• Meanwhile...

Just when 2022 was getting known for noise, the markets quieted down last week. For the first time in five weeks, the S&P 500 did not move 3% in one direction or the other. For the first time this year, no trading day last week saw the S&P 500 move 1% or more in either direction. We begin a new week with the S&P 500 not having moved 1% or more in either direction in six straight days. It has been a year since it has had a longer streak of small swings.

More Context: In the past half century, the only years with more 1% daily moves than 2022 were 2008 and 2002. Before this recent run of quiet, the S&P 500 had moved by 1% on more than half of the trading days. Historically there is an inverse relationship between volatility and strength. In the past half century, no year had fewer 1% moves than did 2017 (which had fewer for the entire year than 2022 is averaging per month). When daily volatility subsides, prices typically rise. That was the case in 2016-17, mid-2018, late-2019, and (to a lesser...

From the Desk of Willie Delwiche.

With stocks experiencing week-to-week swings at a nearly unprecedented level, zooming out and keeping a bigger picture in mind is an essential. The Value Line Geometric Index’s affinity for round numbers makes this an easier exercise.

Why It Matters: The Value Line Geometric Index (a broad proxy for the median US stock) is in the middle of the range between 500 and 600 that has been intact since Memorial Day. Prior to that it spent 15 months moving from 600 to 700 and then back to 600. Looking back over the past 15 years, round numbers have acted as magnets for this index. If this tendency holds, a break above the August peak could clear the way for a test of its high near 700. Conversely, breaking below the September low could lead to a test of 400, a level seen during the COVID sell-off & recovery. Which way it breaks remains to be seen - but the lines have been drawn.

This is the video recording of the November 17th, 2022, Weekly Town Hall w/ Willie Delwiche.

11/17/22 2:00 PM ET

From the desk of Willie Delwiche.

Long-term yields are moving lower while short-term yields continue to rise. The spread between 10-year and 3-month Treasury yields is the most negative it has been in over a decade. It has been four decades since the spread between 10-year and 2-year yields has been as negative as it is now.   

Why It Matters: Yield curves invert (short-term yields become higher than longer-term yields) when the bond market thinks that the Fed has already or will soon become too restrictive for the economy to remain healthy. It is the market betting that the Fed will have to cut rates, bringing down yields at the short-end of the curve. Inverted yield curves are a sign of macro stress and have historically been reliable forecasters of recession. The depth of the current inversions is a warning signal from the bond market, a call for caution on the economy and earnings (and by extension, stock prices). It’s not just happening in the US - except for one blip during 2008, the spread between German 10-year and 2-...