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Breadth Thrusts & Bread Crusts: What You Don't Need to Know in 2022

January 6, 2022
JC Parets

From the desk of Willie Delwiche.

I recently watched The Matrix with my son. 

Not the fourth installment released late last year, but the original movie – the one that came out more than 20 years ago.

One important caveat: My son is only 13. The Matrix is an R-rated movie filled with violent action scenes. So I didn’t take the decision to let him watch the movie lightly.

Ultimately, I decided the movie raises some important ideas that I wanted to share with him. I'm not talking about ideas of simulated reality or various theatrical elements. For me, one of the key insights is that by tuning out the noise, we can improve our decision making. By focusing on what matters, we have more time to act. When wisdom combines with clarity of purpose, the seconds seem to tick by more slowly.

This doesn't just happen in the movies. Watch an experienced quarterback engineer a winning touchdown drive in the final two minutes of a football game and you will get a sense of what I mean. They seem to have more time to decide, act, and react than anyone else on the field. Maybe time is indeed passing more slowly for them.

[PLUS] Weekly Sentiment Report

January 5, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Year-end strength in stocks alleviated some of the concern that had crept into investors’ collective psyche. Short-term sentiment swings aside, investors remained positioned aggressively long stocks at a time when strategic risks remain high. December set a monthly record for equity ETF inflows and that price chasing pushed equity valuations to some of their highest levels on record. The optimism in positioning is not reflected in the sentiment surveys. But if the unwinding in the speculative bubble that peaked early last year gains steam, look for a lack of optimism to be replaced with outright pessimism, followed by a re-positioning of assets.

Sentiment Report Chart of the Week: Commodities soar but struggle for attention

[PLUS] Weekly Market Notes & Breadth Trends

January 3, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Large-caps take the 2021 crown as mid-caps & small-caps struggle to get back in gear. US strength not being echoed among global equities. Tactical risk management model gives benefit of the doubt to bulls.

  • Entering 2022, Real Estate, Technology, Health Care and Consumer Staples hold down the top spots in our S&P 500 sector relative strength rankings.
  • Our industry group-based heat map shows deteriorating conditions across Energy and Financials and improving conditions in Staples and Utilities. Leadership from defensive groups is not usually consistent with risk-on behavior.

[PLUS] Weekly Sentiment Report

December 22, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: The sentiment backdrop is more characterized by a lack of optimism than widespread pessimism. This is in sharp contrast to the experiences of December 2020 and 2019. In those instances, too much holiday cheer led to hangovers in the year that followed (don’t forget, new highs peaked early in 2021 and many areas have been a sideways mess for months now). The current sentiment backdrop is not dissimilar to (though less extreme than) what was experienced in December 2018. Intense selling that month had investors thinking more about the Grinch than Santa Claus. While probably won’t get widespread pessimism this time around without further volatility - but if we do and investors throw in the towel on stocks, it could ultimately help light a fire that leads to early year breadth thrusts like what we experienced in early 2019.

[PLUS] Weekly Risk Perspectives - Tactical Signals Turn Cautious

December 21, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • Tactical model argues for caution heading into 2022
  • Absence of a breadth thrust leaves market looking for energy elsewhere
  • Liquidity indicator remains supportive but Macro Sentiment and Breadth point to rising risks

There was a story in the WSJ earlier this year about a fund manager who held 900 of his best ideas in his main mutual fund. I saw a model this summer that was made up of nearly 100 individual momentum  indicators. Some will use a double-digit number of categories for gauging the market. One more holding, one more indicator, one more lever - it’s as easy as adding one more column in the spreadsheet. If more is better that is great, the question though is at what point is more just too much.

[PLUS] Weekly Market Notes & Breadth Trends

December 20, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Falling bond yields do not inspire confidence. Industry group trends faltering as breadth weakens. Holiday cheer has already turned sour.

  • After last week’s big jump from Consumer Staples (which held in at #4 this week), it was Utilities making a big move (from #9 to #6) in the rankings. Defensive groups are seeing strength on an absolute basis (more on that in a moment) and that is translating into higher sector rankings and improving conditions at the industry group level.
  • Real Estate has taken over the top spot in the rankings while cyclical sectors seem to be in a race to the bottom.

[PLUS] Weekly Observations & One Chart for the Weekend

December 17, 2021
JC Parets

From the desk of Willie Delwiche.

The Fed is turning off the liquidity spigot and expects to start raising interest rates next year. There are plenty of historical studies showing the relatively benign impact of the first one or two rate hikes. This cycle, though, will be a bit different than what has been experienced in the past. Historically, the Fed is leading the way with interest rate hikes, moving toward tightening ahead of other global central banks. The muted impact of those initial rate hikes may be partly due to the fact that most central banks have still been accommodative.  That is not going to be the case this time around. Nine central banks have raised their interest rates in December alone and by the time the Fed makes its first move, a majority of central banks will likely be tightening.