Just when 2022 was getting known for noise, the markets quieted down last week. For the first time in five weeks, the S&P 500 did not move 3% in one direction or the other. For the first time this year, no trading day last week saw the S&P 500 move 1% or more in either direction. We begin a new week with the S&P 500 not having moved 1% or more in either direction in six straight days. It has been a year since it has had a longer streak of small swings.

More Context: In the past half century, the only years with more 1% daily moves than 2022 were 2008 and 2002. Before this recent run of quiet, the S&P 500 had moved by 1% on more than half of the trading days. Historically there is an inverse relationship between volatility and strength. In the past half century, no year had fewer 1% moves than did 2017 (which had fewer for the entire year than 2022 is averaging per month). When daily volatility subsides, prices typically rise. That was the case in 2016-17, mid-2018, late-2019, and (to a lesser...

From the Desk of Willie Delwiche.

With stocks experiencing week-to-week swings at a nearly unprecedented level, zooming out and keeping a bigger picture in mind is an essential. The Value Line Geometric Index’s affinity for round numbers makes this an easier exercise.

Why It Matters: The Value Line Geometric Index (a broad proxy for the median US stock) is in the middle of the range between 500 and 600 that has been intact since Memorial Day. Prior to that it spent 15 months moving from 600 to 700 and then back to 600. Looking back over the past 15 years, round numbers have acted as magnets for this index. If this tendency holds, a break above the August peak could clear the way for a test of its high near 700. Conversely, breaking below the September low could lead to a test of 400, a level seen during the COVID sell-off & recovery. Which way it breaks remains to be seen - but the lines have been drawn.

This is the video recording of the November 17th, 2022, Weekly Town Hall w/ Willie Delwiche.

11/17/22 2:00 PM ET

From the desk of Willie Delwiche.

Long-term yields are moving lower while short-term yields continue to rise. The spread between 10-year and 3-month Treasury yields is the most negative it has been in over a decade. It has been four decades since the spread between 10-year and 2-year yields has been as negative as it is now.   

Why It Matters: Yield curves invert (short-term yields become higher than longer-term yields) when the bond market thinks that the Fed has already or will soon become too restrictive for the economy to remain healthy. It is the market betting that the Fed will have to cut rates, bringing down yields at the short-end of the curve. Inverted yield curves are a sign of macro stress and have historically been reliable forecasters of recession. The depth of the current inversions is a warning signal from the bond market, a call for caution on the economy and earnings (and by extension, stock prices). It’s not just happening in the US - except for one blip during 2008, the spread between German 10-year and 2-...

From the desk of Willie Delwiche.

The broker-dealer index (XBD) has eclipsed its August high and almost back to even on the year. Relative to the S&P 500, XBD has broken out above its early 2021 peak and is now at its highest since 2008.     

Why It Matters: Seeing uptrends in areas outside of just the Energy sector suggests rally participation may be expanding. This gives investors who can move beyond just the indexes more opportunities to lean into strength. But the broker/dealer group isn’t just any group. It’s typically seen as a leading indicator for the S&P 500 overall. Relative strength from this group is good for the market overall and says encouraging things about overall risk appetite.      

We take a Deeper Look at investor risk appetite and whether the recent improvement is likely to be sustained.

Last week’s 5.9% rally in the S&P 500 was the best single-week gain since June but it was not enough to shift any of the criteria on our Bull Market Re-Birth Checklist.

More Context: Big weekly moves in either direction have been relatively common this year. The S&P 500 has gained or lost 3% (or more) nineteen times so far this year. The average year since 1945 has seen 6 weekly moves of 3% or more. The record (held by 1974 and 2008) is 21. As I mentioned in last week’s Townhall Takeaways, volatility and strength have tended to be inversely correlated. Our Bull Market Re-Birth Checklist helps cut through the noise of big price swings and looks for evidence that strength could be sustainable. It's close but no cigar for several of the checklist criteria, suggesting the jury is still out on the current move. And after getting to 4 out 5 criteria met during the rally into the August peak, we are looking for 5 out 5 for evidence of a...

From the Desk of Willie Delwiche.

Time for A New Driver

Priced in their own currencies, more than half of the countries in the world are trading above their 200-day averages. The US is not among them. 

Why It Matters: The US has been in an uptrend versus the rest of the world for 235 weeks in a row, the longest continuous stretch of US leadership in the past 50 years. More broadly, the past decade has taught US investors that global diversification means lower returns and higher risk. But that trend is long in the tooth. If the dollar continues to fade, the opportunity for new leadership will become more apparent. Emerging Market central banks led the way into the tightening cycle and they could lead the way out of it. Remove currency factors and improving global rally participation can more readily be seen. And right now the US is not in the driver’s seat.

This is the video recording of the November 10th, 2022, Weekly Town Hall w/ Willie Delwiche.

11/10/22 2:00 PM ET

From the desk of Willie Delwiche.

The number of issues that traded on the NASDAQ in any given week just prior to COVID was somewhere around 3500. Last week 5500 issues traded on the NASDAQ.   

Why It Matters: The number of issues trading on the NASDAQ topped out at over 6000 in 1997. By the time the NASDAQ 100 peaked in 2000, this number was already approaching 5000. As that bubble burst, the number of issues traded on the NASDAQ collapsed (dropping to 3500 by the end of 2003). Listings declined further during the Financial Crisis. The Technology sector has led the way lower in the current bear market and many former higher flyers are trading at pennies on the dollar. But listings on the NASDAQ have actually expanded since the index peaked nearly a year ago. It’s hard to think about the market healing when defunct companies haven’t yet been shown the door.  

In this week’s Sentiment Report we take a closer look at how options traders are feeling and what it might take from a sentiment perspective for the stocks...

From the desk of Willie Delwiche.

Going back to 1950, the S&P 500 has always always been higher one year after midterm elections than it was on election day. But over the shorter-term, the market has had a more mixed reaction to the votes being cast and counted.     

Why It Matters: Investors are looking for a catalyst that could help 2022 finish on a more positive note and allow 2023 to begin with some positive momentum. There is no denying the historical pattern for stocks to rally in the wake of midterm elections. No doubt there will be pockets of strength in this cycle as well. Some of the dominant themes that have been present already in 2022 (e.g. more volatility than strength and a deteriorating liquidity backdrop) argues for seeing evidence of strength before embracing the pattern.     

We take a Deeper Look at market challenges that aren’t going away just because the voting is done and where investors could look for signs that conditions are improving.

Range Bound and Restless

The S&P 500 was down last week but remains above its June lows and below its August highs.

More Context: We can look up at the summer highs on the S&P 500, but as long as more stocks are making new lows than new highs the risk is that it is the summer lows that are in jeopardy of being broken. The degree and duration of downturns since 2015 has varied but a clear pattern has emerged: rallies are difficult to sustain if fewer stocks are making new highs than new lows. Clearing the August high for the S&P 500 likely means seeing the NYSE + NASDAQ new high lists getting longer than the new low list (which has happened only twice in the past 50 weeks).   

We take a Deeper Look at important ranges across the market and where we are seeing important breakouts rather than restless investors trying to anticipate the next move.  

From the Desk of Willie Delwiche.

Rules Need Application To Be Useful

Market legend Marty Zweig was known for his investing rules. The first among them addressed the importance of staying in harmony with the underlying trend in the market. Good rules are great guides - we ignore them to our own peril. 

Why It Matters: Rules need to be more than trite and convenient sayings. But given that we each have our own temperament and time frames, our individual applications will likely vary. For me, recognizing that the trend is my friend and not fighting the tape means respecting the direction of the long-term trend in the S&P 500 and the advance/decline line based on net new highs for the NYSE + NASDAQ. All of the net gains for the S&P 500 over the past two decades have come when at least one of those is rising. Right now, as has been the case almost continuously since February, they are both falling. That is not a tape I want to fight.