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Breadth Thrusts & Bread Crusts: Cast Iron Investing

July 1, 2021
JC Parets

From the desk of Willie Delwiche.

A strange thought occurred to me as I was cracking eggs into a well-seasoned pan over the weekend: cast iron pans and technical analysis have a lot of similarities. 

This might sound a little crazy, but the idea is worth pursuing. Bear with me while I give it a shot...

Growing up, my family didn't often use cast iron pans. They had a reputation for being hard to use. On the rare occasions that I did use one, food would burn and stick to the pan. So I was stuck with inferior results and lots of cleanup. 

We preferred Teflon-coated cookware. Teflon benefitted from great advertising and the promise of progress. They seemed miraculous at first. But the coating would chip over time and bits of it ended up in the food. Still, the cast iron went unused.

But our problems with cast iron had nothing to do with the material. It was how we were using these pans that caused our issues. We didn't understand how we needed to season a cast iron pan with oil. Also, using too much soap on clean up destroys the finish you worked to build up. 

[PLUS] Weekly Macro Perspectives - Second Half Begins With Plate Full of Questions

June 30, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • New highs are not expanding, but neither are new lows
  • Housing costs fuel inflation but bonds are unconcerned
  • Risk on/risk off in neutral but broker dealers threaten break down

As 2021 began, the strong trends that emerged in 2020 were intact. But as we get ready to make the turn to the second half, we find ourselves looking at a muddled mess of stalled out trends and conflicting signals. How these resolve will go a long way toward dictating the paths that the market and the economy take over the second half of the year. 

[PLUS] Weekly Sentiment Report

June 29, 2021
JC Parets

From the desk of Willie Delwiche.

Key takeaway: Even with some indicators backing away from extreme optimism, sentiment remains on the risk side of the scale. Optimism can be slow to unwind as hopeful investors typically hold on until price changes force their hand and compel action. Optimism fades slowly and then all at once (whereas, fear, when it emerges, spikes quickly, and then slowly fades). The decline in consensus bulls and the emerging  pattern of equity market exposure among active managers echoes a waning in risk appetite that can be seen in equity and options market trading volume. Longer-term sentiment indicators continue to point to an elevated risk environment. 

 

Sentiment Report Chart of the Week: “Less is More”

[PLUS] Weekly Market Notes & Breadth Trends

June 28, 2021
JC Parets

Key Takeaway: Indexes made new highs last week, but rally participation has been lackluster. Faltering industry groups and global market trends can make index-level advances short-lived. New breadth thrusts or an Emerging Markets-led rally would suggest downside risks are subsiding.

 

  • The Energy sector reclaimed the top spot in the rankings this week, followed by Communications Services (down one spot from last week) and Real Estate (up one spot from last week). 
  • Industrials and Materials have dropped out of the leadership group (which is based on rankings over a three-week span) over the past two weeks. Technology and Communication Services have joined Energy, Financials, and Real Estate in the leadership group.

[PLUS] Weekly Observations & One Chart for the Weekend

June 25, 2021
JC Parets

From the desk of Willie Delwiche.

The weight of the evidence is neutral and we’ve been discussing how it has been and remains a messy environment for stocks. We can see this in our Risk On/Risk Off Ratio which has been consolidating for several months. What caught our attention recently is how closely this ratio has moved with Emerging Markets. When looking for evidence of whether the market is poised to break out (which some indexes suggest it is), break down (which some breadth divergences suggest is a possibility), or continue to move frustratingly sideways (which seems to be a minority view at this point), we would start with this chart. If the Risk On/Risk Off Ratio and Emerging Markets are making new highs, the cyclical is probably ready to resume. If they are moving lower, a deeper correction for stocks could be in store. While they continue to move sideways, it probably remains a “less is more” kind of market.

[PLUS] Weekly Macro Perspectives - Look Past the Indexes: Stocks Are Struggling to Stay in Gear

June 23, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaways:

  • Investors are optimistic, but momentum isn’t confirming price strength
  • While indexes rally, breadth trends are stumbling
  • Big rebound in earnings is already priced in

The NASDAQ Composite rallied to a new all-time high this week. The S&P 500 fell just shy of a record close of its own. While sentiment indicators suggest that investors are celebrating these new highs, a closer look shows that index-level price strength is not being confirmed by momentum. In fact just the opposite is happening, with weekly momentum trends continuing to move lower.

The Value Line Geometric Index has moved from new high to below its 10-week average in the space of a week. Momentum has peaked and is moving lower.

[PLUS] Weekly Sentiment Report

June 22, 2021
JC Parets

From the desk of Willie Delwiche.

Key takeaway: Last week’s volatility unwound some near-term complacency, but there is still plenty of evidence of optimism in the system. Active managers increased their equity exposure and equity ETFs continue to attract inflows at a staggering pace (though certain sectors are starting to see outflows). A more challenging breadth backdrop poses a challenge, but with economic data continuing to surprise to the upside and earnings expectations being revised higher, excessive optimism may be slow to unwind. While risks are elevated from a sentiment perspective, they are not yet being manifested in terms of price. 

 

Sentiment Report Chart of the Week: Large Tech Outflows

[PLUS] Weekly Market Notes & Breadth Trends

June 21, 2021
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Fed-fueled volatility exposes weakness beneath the surface. Breadth trends at odds with index-level resiliency. Drop-in yields and defensive sector leadership consistent with elevated risk environments.

 

  • Last week’s volatility produced a shake-up in our relative strength rankings. Materials and Financials both saw big drops, while Technology and Communication Services surged into the lead.
  • Looking beyond the cap-weighted S&P 500 sectors shows a less decisive shift in leadership - Energy & Real Estate remain strong, both at the sector level and in terms of the industry group heat map.