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[PLUS] Weekly Sentiment Report

June 29, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: With pessimism at levels that elicit comparisons to the financial crisis, conditions are set for a meaningful bounce in equities. But at this point, the similarities appear closer to what prevailed in the first half of 2008 than what was seen as stocks moved toward their final lows in March 2009. With the NYSE and NASDAQ still seeing more new lows than new highs (31 weeks and counting) and breadth thrusts conspicuously absent, the backdrop offers little about which to get excited. Recent leaders are experiencing newfound weakness and new leaders are more defensive in nature. Investors have endured a succession of failed rallies in recent months, but that patience may wear thin. The burden of proof is on the bulls. Rally attempts that increase hope but offer little strength would fit the pattern seen during the financial crisis

Sentiment Report Chart of the Week: Mixed Messages From Bonds 

[PLUS] Weekly Market Perspectives - Recession Question Looms As Bear Market Persists

June 28, 2022
JC Parets

From the desk of Willie Delwiche.

Identifying recessions is an academic exercise for historians. It usually requires the passage of time to gain the necessary perspective. The December 2007 business cycle peak was not identified as such (by the NBER) until December 2008. While June 2009 would eventually be identified as the business cycle trough, NBER did not make this determination until September 2010.

For those allocating capital in real-time, this becomes more than just an academic discussion. Whether the economy is in recession or not can impact the length and severity of bear markets. Bear markets that occur independent of recession tend to last 7 months, with an average peak-to-trough drawdown of 23%. If there is a recession involved, bear markets tend to last for well over a year and the average pullback is 33%. The recession question was a hotly debated topic in early 2008 and there are certainly echoes of those conversations now. 

[PLUS] Weekly Market Notes

June 27, 2022
JC Parets
From the desk of Willie Delwiche.

Key Takeaway:

  • Indicators suggest echoes of Financial Crisis.
  • Looking for signs of strength, not just absence of weakness.
  • Burden of proof is on the bulls to show that strength can persist.

At this point, we cannot know whether the current environment will ultimately end up bearing more than a passing resemblance to the 2008/09 financial crisis. There are, however, enough similarities between now and then that the comparison is worth considering.

Consider what we are seeing from a price perspective and across a handful of other indicators:

[PLUS] Weekly Observations & One Chart for the Weekend

June 24, 2022
JC Parets

From the desk of Willie Delwiche.

This is a good time to think about what could happen after the midterms because the run-up to this fall’s elections could be almost unbearable. The Fed, the Supreme Court and lingering fights over the 2020 election will provide candidates of all stripes with plenty of political fodder. The public mood is already dour and an onslaught of negative ads is not likely to help. History and conventional wisdom suggest stocks could struggle for traction over the summer, find a low prior to the election and then rally as the outcome becomes evident. The S&P 500 has been higher 12 months after every single mid-term election since at least 1950. The problem with that information is that it is being widely discussed. The data is what it is and the past is all we have to go on. Nonetheless, the words of Bernard Baruch seem relevant right now: “Something that everyone knows isn’t worth anything.”

Breadth Thrusts & Bread Crusts: Adapting to the Unexpected

June 23, 2022
JC Parets

From the desk of Willie Delwiche.

Monday was an unexpected break. Markets were closed for Juneteenth Day, which is now a Federal holiday. I didn't realize that would be the case until the middle of last week. It has made for a short week in the market after a long weekend for doing whatever it is you do to get refreshed after staring at computer screens all day. For me, it meant more time in the garden.

The garden has provided its own share of unexpected developments recently, and I’m not just talking about volunteer cantaloupes (though there are several of them around).

In the pond, a spike in ammonia levels necessitated an overdue and unexpectedly extensive cleaning. Not only is it now a healthier environment in which the fish can thrive, but in the process we discovered a baby fish that we hadn't known about.

[PLUS] Weekly Sentiment Report

June 22, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: More and more distribution patterns are resolving lower as bearish price action runs rampant across all major assets classes. Even the leadership groups such as commodities experience selling pressure as pessimism grows. Yet, while investors have expressed concern, they have not done much about it. Equity funds continue to attract inflows ($200+ billion YTD, according to DB) and households are hardly flush with liquidity. Perhaps it will take a second quarter in a row of being told not to look at their retirement account statements to prompt some investor action.

Sentiment Report Chart of the Week: Copper Looks Tarnished 

[PLUS] Weekly Observations & One Chart for the Weekend

June 17, 2022
JC Parets

From the desk of Willie Delwiche.

Not sure where I first heard it, but I’ve always loved this saying: “Bull markets take you to levels you never thought you would see. Bear markets take you to levels you never thought you would see again.” Since the S&P 500 is now down more than 20% from its January peak, we are able to discuss bear market tendencies without getting the “yeah buts” from polite society. The S&P 500 is at levels not seen since late-2020, while the small-cap Russell 2000 is below its pre-COVID high back to where it was in early-2018. The Value Line Geometric index is also below its pre-COVID high and is at a level it first reached in early 2015. That is seven years of no progress for an index that serves as a proxy for the median stock.    

Breadth Thrusts & Bread Crusts: Rookie Mistakes

June 16, 2022
JC Parets

From the desk of Willie Delwiche.

Last week, it was cool and rainy in Milwaukee. This week, it's been sunny and sweltering (with a few thunderstorms thrown in as well). Summer has definitely arrived as we approach the solstice and max daylight in the Northern Hemisphere.

With the heat we’ve had this week (several days in the 90s pushed our greenhouse temperatures to at least 120, which is as high as our thermometer measures), I've been sure to water the garden early and often.

[PLUS] Weekly Sentiment Report

June 15, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Lower prices have a way of souring investor moods. It’s a relationship that thrives on the feedback loop it creates. Increased selling pressure begets pessimism that fuels continued selling pressure. With the recent relief rally behind us, short-lived optimism has dissipated and bearish sentiment is on the rise  (II bull-bear spread challenges its lowest level since the GFC and Consensus bulls fall to their lowest reading since the Covid crash). It’s hard to claim sentiment is washed out as long as pessimism is still expanding. And based on the disparity between investor moods and positioning, there’s still plenty of gas in the tank for the bears.

Sentiment Report Chart of the Week: Household Liquidity Near Historic Lows