From the desk of Willie Delwiche.

As good as the market looked in January, it looked that bad in February. The month began with the technical conditions for the re-birth of a bull market being met, but by the end of the month there was still little evidence of bull market behavior. If the Q4 turn is going to prove resilient, it’s time for the bulls to step up and show that the path of least resistance is indeed higher. That means firmly embracing a rally that has faltered under the ongoing weight of macro concerns and is on the cusp of breaking down.

Our Weight of the Evidence Dashboard fills in the details and includes a few charts that have our attention heading into March. 

From the desk of Willie Delwiche.

The macro factors are all bearish and the market factors are all bullish. It is true that after a bottom market conditions will tend to improve ahead of macro conditions. But it is also true (and we had ample evidence of this last year) that market conditions are subject to false starts. In those situations embracing unsustainable strength can penalize investors. This a trust but verify environment in which indicators of sustained trend have more weighting than one-off signals of opportunity. With the weight of the evidence balanced between risk and opportunity, this may be a time to move toward benchmark exposure,  while focusing on areas of relative leadership and absolute strength.

From the desk of Willie Delwiche.

The new year can bring the hope of a better market environment. While it can be tempting to draw conclusions about all of 2023 from how December closed and January has begun, we would counsel patience. One lesson from 2022 is that normally reliable indicators of strength can be distorted in elevated volatility environments. The evidence has not improved and caution remains warranted. The liquidity environment remains poor, last year’s pattern of lower lows and lower highs is intact and the trend in the net new high data has not improved. Across asset classes, and both in the US and around the world, uptrends are hard to find. Gold, though, is starting to shine.

Our Weight of the Evidence Dashboard fills in the details and includes a few charts that have our attention heading into 2023.

From the desk of Willie Delwiche.

The Scales are unchanged this month, continuing to tip toward risk and away from opportunity. 

A strong finish to November has renewed hopes that the 2022 bear market is moving from present reality to past experience. The weight of the evidence argues against jumping to that conclusion just yet. Simply put, we have not seen enough market strength to justify looking past the still present macro concerns. The evidence remains cautious and so do we. 

Our Weight of the Evidence Dashboard fills in the details and includes a few charts that have our attention heading into December.

From the desk of Willie Delwiche.

The Scales are more balanced than last month but are still tipped toward risk and away from opportunity. 

Macro folks are sorting out just how bearish they need to get while market folks are trying to figure out just how bullish they should get. From my perspective, less macro-related volatility could help stocks build on their October gains heading into year end. But there isn’t much evidence of that taking place just yet. With that, the inability of the recent rally to show sustainable strength (and more new highs than new lows) suggests caution remains warranted. 

Our Weight of the Evidence Dashboard fills in the details and includes a few charts that have our attention heading into November.

From the desk of Willie Delwiche.

The Scales are tipped toward risk and away from opportunity.

A challenging macro backdrop is weighing on the market and unsustained rally attempts have kept Breadth and Trends & Momentum from joining Sentiment as reasons to look for opportunity.

Our Weight of the Evidence Dashboard fills in the details and includes a few high-level charts that we are watching as we head into the 2022 homestretch.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.

Key Takeaway: Risks to the economy are rising, though a recession is not a foregone conclusion at this point. Barring a dramatic and unlikely abatement in inflation pressures, the path of least resistance for interest rates is higher than the market is accounting for at this point. Rally attempts have been volatile but, so far at least, short-lived and as longer-term trends turn lower, many investors are dealing with an unfamiliar (and uncomfortable) environment. While moods have soured, positions are little changed. Overall these are the conditions under which bear markets can die and bull markets be re-born. The evidence at this point does not suggest that turn is at hand.  

From the desk of Willie Delwiche.

From the desk of Willie Delwiche.