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.

The S&P 500 continues to make lower highs as new lows have approached, but not broken below, new highs. This breadth signal occurred as the S&P 500 was peaking in January. It re-emerged near the March and August highs and appears to be doing so again.   

Why It Matters: New high versus new low crossovers are usually fueled more by changes in the new low list than the new high list. New highs edge up slowly in the early stages of a bull market and can peak well before the indexes. The post-COVID bull market was a great example of that. But regardless of the driver, history shows it is important that they take place. As the longest bear market since the Financial Crisis has moved along, investors have been itching to turn more optimistic. But so far the price action (on the surface and below) isn’t doing much to change anyone’s mind or give rise to the increase in bulls needed to have a bull market.

In this week’s Sentiment Report we take a closer look at persistent...

This is the video recording of our December 5th Monthly Charts Live Strategy Session

I'm not sure what everyone is so angry about, but I like it.

The pessimism out there is off the charts.

Investors are scared.

Risk aversion is dominating. Risk appetite is non-existent.

From the desk of Willie Delwiche.

The S&P 500 and various measures of investor sentiment all remain below their August highs. We are getting neither the broad increase in optimism nor the improving price action needed to argue that the bounce off of the October lows is the beginning of a new bull market.   

Why It Matters: Price and sentiment often move in tandem. Optimism rebounded as stocks rallied off its October low but has struggled (like it the S&P 500 itself) to eclipse it’s summer highs. All three sentiment indicators have now ticked lower and we are seeing some evidence that the upside price momentum that accompanied the rally off of last month’s lows is starting to wane. Investors getting impatient with an unexpectedly persistent downtrend in prices could be reflected in sentiment indicators moving back toward their recent lows. Ultimately, time will tell how investors respond to their resolve being tested.   

In this week’s Sentiment Report we take a closer look at the latest options data and...

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...

This week we came right out of the gates with the Chart of the Decade.

The catalyst for stocks to have a sustained rally is a weaker US Dollar.

The market keeps proving that to be right.

And yes, I am aware that in the 1990s, a weaker Dollar was not the bullish catalyst for stocks.

But are you aware that this is not the 1990s?

It's 2022 and the correlation has been consistently negative between stocks and Dollars.

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-...

From the desk of Willie Delwiche.

The number of issues that traded on the NASDAQ in any given week just prior to COVID was somewhere around 3500. Last week 5500 issues traded on the NASDAQ.   

Why It Matters: The number of issues trading on the NASDAQ topped out at over 6000 in 1997. By the time the NASDAQ 100 peaked in 2000, this number was already approaching 5000. As that bubble burst, the number of issues traded on the NASDAQ collapsed (dropping to 3500 by the end of 2003). Listings declined further during the Financial Crisis. The Technology sector has led the way lower in the current bear market and many former higher flyers are trading at pennies on the dollar. But listings on the NASDAQ have actually expanded since the index peaked nearly a year ago. It’s hard to think about the market healing when defunct companies haven’t yet been shown the door.  

In this week’s Sentiment Report we take a closer look at how options traders are feeling and what it might take from a sentiment perspective for the stocks...

From the desk of Willie Delwiche.

Households Stick With Stocks

Household equity exposure is ten percentage points below its November 2021 peak. Even with that decline, it is only now approaching its long-term average. Bond exposure remains below its long-term average and cash exposure in October moved above its long-term average for the first time since COVID. 

Why It Matters: Moods are sour, but for all the talk of rampant pessimism & historic levels of bearishness, individual investors have not abandoned stocks. This is as evident in the AAII asset allocation survey as it is in the latest ETF flow data. For the amount of pessimism that is being seen elsewhere, there is relatively little cash on the sidelines. If there is an underowned and unloved asset class it is either bonds or commodities, not stocks.  

In this week’s Sentiment Report we take a closer look at how investors are feeling and how that squares with what they are doing.

From the desk of Willie Delwiche.

“This Is A Test. This Is Only A Test.”

The S&P 500 this month and last undercut its June low but it is now back above that key level. The same can be said from a sentiment perspective. The NAAIM Exposure index and the Bull-Bear spreads for Investors Intelligence and AAII in recent weeks dipped below their Q2 lows but have since recovered.

Why It Matters: Important lows often get re-visited one last time before trends turn and rallies become sustainable. It will be a lot easier for stocks to build on recent strength if optimism is increasing. It does indeed take bulls to have a bull market. Confirmation that this was just a test is twofold: staying above the Q2 lows and continued improvement beneath the surface (including seeing more stocks make new highs than new lows). 

In this week’s Sentiment Report we take a closer look at how investors are feeling and how (if at all) we can take advantage of it.

This is the video recording of the October 2022 Mid-month Conference Call.

We discussed:

• The DJ Industrial Avg at the Pre-Covid Highs
• Fewer Stocks are making New Lows
• Small-caps, Mid-caps & Micro-caps diverging positively
• Sentiment is at a historic bearish extreme
• Credit Spreads tightening the past 4 months
• Negative Correlation Between US Dollar & Stocks intact
• Consumer Discretionary outpacing Staples
• Sector Level trends are improving
• Energy making new 52-week highs relative to Stocks
• Shorting these REITs and Software Stocks
• Industrials & Regional Banks making new 52wk relative highs
• More Bullish Options Activity in Occidental Petroleum
• Coal Stocks Setting Up For Breakouts
• Industrial Stocks ready to bounce
• Financials holding Support
• Copper/Gold ratio not confirming new highs in Yields
• 5 & 10/yr Breakevens peaked quarters ago
• Emerging Markets down near critical levels
• Seasonally the best time to buy stocks
• List of my favorite stocks to...