From the desk of Willie Delwiche.

From the desk of Steve Strazza.

Our Top 10 report was just published; our weekly report highlighting the best 10 ideas and respective charts we are seeing across the markets this week.

1. Weakening Internals In The World’s Top Index

This is the video recording of the February 25th Town Hall Meeting w/ Willie Delwiche & JC Parets.

02/25/21 2PM ET

From the desk of Willie Delwiche.

Key takeaways:

• Previous leaders have been overwhelmed by strength elsewhere
• Market following those who are stepping into the fray
• Market dynamics working against passive investors

Have the generals lost their way? Maybe not in an absolute sense, but definitely relative to where the action on the battlefield is taking place. More importantly, does this doom the army to defeat? 

Market discussions of generals and their armies usually focus on whether the army is retreating as the generals advance. A very different situation is playing out currently. The mega-cap leaders that have been pacing the market for years (a trend that intensified this time last year as the shock of COVID overwhelmed the world) have been bogged down even as other areas of the market have heated up. So far, at least, it has been a case of marching in place more than actually sustaining losses. Upward pressure on bond yields and the emergence of better opportunities elsewhere could soon turn a relative weakness into absolute weakness.

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From the desk of Willie Delwiche.

Key takeaway: Optimism remains elevated when looking at investor positioning (equity ETFs have seen a quarter trillion dollars of inflows since the end of Q3) and demand for call options (up 60%+ over the past year). But sentiment concerns become more acute (and stocks more vulnerable) when optimism shows evidence of meaningfully unwinding. This week’s featured sentiment chart (ratio between HYG and LQD) suggests that rather than pushing back from the buffet and beginning to tighten their belts, investors continue to have a robust risk appetite. That doesn’t preclude an uptick in market volatility, but it reduces the risk of sustained weakness at this point.

Sentiment Chart of the Week: HYG/LQD Ratio and S&P 500

From the desk of Willie Delwiche.

Key Takeaway: After record strength, breadth is taking a well-deserved breather.

This has the hallmarks of digestion more than divergence, especially after recording yet another breadth thrust. Re-opening optimism is running high and bond yields around the world are climbing.

With earnings and economic expectations still being revised higher, the path of least resistance for stocks remains higher even if we are starting to see a few more tripping hazards.

From the desk of Steve Strazza 

Don't miss this weeks Momentum Report; our weekly summation of all the major indexes at a Macro, International, Sector and Industry Group level. As a reminder, we analyze this shorter-term data within the context of the structural trends at play.

From the desk of Willie Delwiche.

This is the video recording of the February 18th Town Hall Meeting w/ Willie Delwiche & JC Parets.

02/18/21 2PM ET

From the desk of Steve Strazza 

Our Top 10 report was just published; our weekly report highlighting the best 10 ideas and respective charts we are seeing across the markets this week. One idea and chart that really has our attention is Emerging Markets overlaid with The CRB Index.

Emerging Markets hit new all-time highs last week. This is supportive of the bullish action we’re seeing from stocks in other regions of the globe as well as economically-sensitive commodities. It is no coincidence that the Emerging Markets ETF $EEM and the CRB index tend to peak and trough in unison throughout history. They relay a similar message of “risk-on.” The big question now is whether it’s time for Commodities to play catch-up with Emerging Markets.

From the desk of Willie Delwiche.

Key takeaways:

• Both sales and earnings coming in better than expected
• Rising bond yields and higher inflation put pressure on valuations
• Excesses unlikely to be unwound while breadth remains strong & surprises are to the upside

Nearly three-quarters of the stocks in the S&P 500 have issued Q4 2020 earnings reports. The results have provided some cause for celebration. Earnings are now seen as rising 3%, versus an expected decline of 10% as of Dec. 31st. This is not strictly a function of shifting costs, write-offs and other methods of financial engineering. Sales in the quarter have surpassed expectations by more than 3%, the largest amount on record (going back to 2008). This eclipses the previous record which was set in Q3 2020. Companies in the S&P 500 have weathered the COVID-crisis much better than analysts had expected and that is being reflected in stock prices.