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The Daily Note
A glimpse at our daily Market Research; see what we see each morning.
One bullish datapoint is stalling of bullish relative trends on the part of the defensive sectors of the market.
All eyes appear to be on the Energy sector as it trades near the rising 200-day moving average.
Dan Russo and Drew Wells highlight S&P 500 Low Volatility, Bitcoin, Russell 1000 Growth/Value, U.S. Dollar Index, and more.
U.S. equities remain in their counter-trend rallies, which have room to the declining 40-week moving averages.
The secular uptrend in commodities remains in place as the key parts of the complex hold support. The dollar is a key datapoint for risk assets.
Bulls look for breakouts from resistance in High Beta/Low Vol, Discretionary/Staples, some degree of stabilization in both Lumber/Gold and Copper/Gold, and an oversold print in the RSI of High Yield Credit Spreads.
Across the equity landscape, Low Volatility ratios have pared back much of their recent gains as equity indices have rallied to the upside.
Risk in the capital markets simply boils down to two varieties: idiosyncratic (asset-specific) and market risk (or Beta).
The major equity indexes are testing long-term resistance zones as investors take a “wait and see” approach.
While the underperformance has been a welcome development for the equity bulls, the price action in the cyclicals remains mixed.
Over 60% of sector components have recaptured their own 50-day moving averages to the upside, but will it be enough to turn the tide?
Major equity indexes have rallied from support and are testing key resistance levels above their 10-week moving averages.
This week we have ween the themes and relationships to track risk appetite hold their ground after rebounding during the prior two weeks.
We review one of the most widely utilized products for obtaining broad international exposure within one ticker—ACWX.
Under the surface, Precious Metals and Agriculture are turning where they should, adding bullish fuel to Energy’s fire.
The breadth data has improved over the past week. Yesterday saw the S&P 500 close above the important 4,000 level.
We explore some developments in the S&P 500 which have caught our attention, setting the stage for an incrementally bullish environment.
Could this be the beginning of a bearish to bullish reversal for the sector, or just another head fake?
While the bulls have done a nice job of fighting off their backs, it is still too soon to say that they have taken control of the match.
There have been near-term improvements at the sector level, putting the bulls in a position to take control.
Under the surface, relative performance vs. the S&P 500 maintains its uptrend, despite the recent pullback.
Last week we noted that the door was open to a countertrend rally that could take the major averages through resistance.
Continued weakness in the dollar could be bullish for equities and commodities. The bulls are in a position to take control; will they capitalize?
This week has seen some risk appetite return to the market as many of the themes that we track have moved higher.
Growth to Value relationships has broken out of relative resistance levels and bearish momentum regimes to the upside in this past week of trading.
Breadth metrics have improved on the week, especially for the short-term data.
Using breadth as a reason to become bullish has produced a few “head fakes” in 2022. However, some developments catch our attention.
As the sector falters under the 50-day moving average, the former defensive outperformer appears to be rolling over on a relative basis.
More time is needed to determine if this is simply another in a series of bear market rallies or something more sustainable.
Defensive leadership remains the name of the game as the bears remain in control of the market.
Despite being a traditionally “defensive” sector in the S&P 500, the Real Estate sector remains under pressure in this environment.
While stocks finished lower last week, we note that the major U.S. averages all closed near the top of their respective ranges.
U.S. equities staged impressive rallies to close near the top of their weekly ranges, setting the stage for potential follow-through this week.
The bearish trends in the Copper/Gold ratio and the High Yield/Treasuries ratio are the most glaring data points.
Historically negative correlations of these relationships with the major indexes remain a major obstacle for the equity bulls.
Across the major averages that we track, metrics were mostly lower on the week and continue to sit near levels that confirm the bearish trend in equity prices.
The largest sector weight within the S&P 500 remains under pressure as the series of lower lows and lower highs define the downtrend.
Instead of writing that breadth is still bad, we’re going to introduce a concept that lends itself to further testing and analysis.
Equities in the U.S. retain their bearish trends, with all three major averages below declining 50 and 100-day moving averages.
Financials remain in consolidation mode at the pre-COVID highs, an area that investors are watching closely for further price action.
Absolute trends remain weak across sectors, forcing investors to continue to find what is “less bad” in a bear market.
Risk assets remain under pressure as investors await the CPI report this week that will likely have implications across asset markets.
It is hard to make a strong bullish case on risk assets. Equities are trading below key resistance levels and moving averages.
Four of the five charts in today’s note paint the picture of a slowing growth environment, with increasing odds of a recession.
Several risk proxies that we track have experienced noteworthy bounces in this week’s trading session.
We want to highlight other metrics that are moving in the right direction while laying out the price action that we want to see from the index.
Materials reversed course and turned into a laggard after breaking through the key levels to the downside that defined the former outperformer.
Breadth metrics have improved slightly over the past two weeks, but we are hard pressed to make a strong bullish case just yet.
The bears remain in control of the trends across the U.S. equity landscape and volatility continues to trade at elevated levels.
The former sector leader of the S&P 500 faces a critical test at support after the sellers found the sector in the middle of last month.
The price action across the S&P 500 sectors over the past week can largely be described as “risk-off”.
Risk off trends largely continue in the intermarket relationships that we track across the board.
Heightened volatility continues as the Consumer Staples sector oscillates around a long-term zone of support and resistance.
Equal weighted indexes relative to their market cap (or float) weighted indexes are a common method of measuring the strength of the average stock.
What’s most interesting in this environment is the development with Small Caps holding the January 2021 upside breakout zone.
The sector has recaptured the pre-COVID highs to the upside, although it hasn’t been enough for the trend to turn bullish just yet.
Many pre-COVID highs across sectors are either being tested as support or recaptured to the upside.
Price action in the major equity indexes saw many countertrend bounces and tests of resistance over the past week.
Commodity funds begin to falter as the percentage of funds maintaining ground above their 50 and 200-day moving averages continues to wane.
AWCI ETF has been a staple in many portfolios throughout the years. As we dive deeper under the surface, magnified risks could be apparent.
Risk appetite across the ratios that we track continues to dwindle as global equity and fixed income volatility remains elevated.
Industrials have not been spared from the sellers during this period of heightened volatility over the past several weeks.
Today, we note that there has not been an explosion in the percentage of stocks reaching oversold levels. Thus far, we have not come close.
Breadth metrics remain weak across most of the major U.S. markets. New lows remain elevated while a build of new highs is elusive.
The biggest change this week is that commodities, which had been bucking the bearish trend, have begun to weaken as well.
Dan Russo and Drew Wells highlight the S&P 500, Bitcoin (BTC/USD), Commodities, Oil & Gas E&P (XOP), and more.
Health Care has both lost an important long-term support zone and experienced a 50/200-day moving average Death Cross in the same week.
Nothing is immune in a bear market. Eventually, the sellers come for the last holdout and the groups that had been performing well.
While the early days of the advance from the COVID lows favored industrial metals over precious metals, the tides appear to be shifting.
It is not a surprise to see the key themes and relationships that we use to gauge risk appetite under pressure.
Last week, we were looking for more from the new highs data; unfortunately, for equity bulls, we did not get more.
For fully invested market participants, the group’s outperformance is testing a key zone that bulls are watching closely.
The bulls dropped the ball, and the bears remain in control of the market.
Bear market bounces across stocks and treasuries have largely played out and given way to lower lows, much to the chagrin of the bottom-calling crowd.
With the sector breaking down below the pre-COVID peak and declining 50-day moving averages, the bearish price action continues to play out.
The bears remain in control. Investors who must maintain an allocation to equities continue to play the game of finding what is “less bad.”
Bears remain in control of the trends in the U.S. equity markets as another week begins. The S&P 500 has lost ground 9 of the past 10 weeks.
As the downside pressure resumes across major equity indexes around the world, fixed income funds continue to offer no port in the storm.
Commodities remain the only port in the storm, continuing a trend that we have been highlighting on these pages for months.
As the equity market fails to maintain upside traction on rally attempts, we highlight three key intermarket relationships.
The improvements that we have seen in risk appetite over the past two weeks are beginning to recede once again.
Breadth metrics mostly improved over the past week, building on the improvements that we have been calling out of late.
The Technology sector is hugging the 2,480 zone from below and struggling to gain any material outperformance relative to the S&P 500.
The most compelling data comes to us from the S&P Small Cap 600, an index whose relative strength we’ve been highlighting for a few weeks.
While the S&P 500 tests the underside of resistance, the S&P 600 has already broken through. The NASDAQ 100 remains a laggard.
Financials are in the process of testing resistance after rebounding back on a bout of strength over the past several trading sessions.
Investing in the current market environment remains a game of finding and riding relative strength.
Dan Russo and Drew Wells highlight Emerging Markets, High Yield Total Return Index, Dollar / Yen, Small Caps / Large Caps, and more.
Major domestic and international themes received a small positive improvement over the past week, but more work needs to be done.
Equities in the U.S. remain under pressure as the S&P 500 has closed lower in the eight of the past nine weeks.
There are clearly defined resistance levels, prices, and/or moving averages that must be overcome before a bullish case can be made.
High Yield credit staged a near-term rebound that appears to have characteristics different than the March rally for risk assets.
The themes that we track in this note have mostly improved for a second consecutive week, an encouraging sign for risk appetite in the market.
Despite the sideways choppy price action that has defined the sector all year long, the real action in the space is under the surface.
On the heels of a bullish TRIN reading, two important breadth developments set the stage for the bulls to take control of the trend.
Breadth metrics have improved for a third consecutive week, something that even the most bearish of bears would be remiss to ignore.
The major averages are all at/near key resistance points below their moving averages. The real work begins now.
After consolidating around the 50-day moving average for much of the 2nd quarter, Energy has moved to new highs for the year.
Many sectors have moved higher from important support levels, but it is hard to make the case that much has changed.
For the QUAL ETF, iShares screens for high return on equity, stable year-over-year earnings growth, and low financial leverage.
The relative performance of metals-related stocks could be signaling either continued strength or a pause in the downtrend.
While there have been some improvements in the near term, it is likely premature to state that investors have shifted to a risk-on stance.
The next move will determine if there is going to be further downside or if we have seen the lows for the move.
Consumer Staples have bounced from longer term support, attempting to make up for lost ground from heightened volatility.
Explore the historical context of the terms “overbought” and “oversold” in a variety of different market conditions.
Investors will want to see a stronger response from stock prices to feel confident that breadth improvements will lead to a durable bottom.
Stocks in the U.S. are trying to stabilize, but this pause in their bearish trends is playing out below important resistance levels.
Dan Russo and Drew Wells highlight SPX Correlations, S&P 600, Copper Miners Relative to S&P 500, Small Caps / Large Caps, and more.
The picture for the Communication Services sector has worsened since we last looked at the group in a bearish light in April.
At the risk of sounding like a broken record, “less bad” continues to be the focus for investors who must maintain an allocation to U.S. equities.
As Global Equity market volatility remains elevated, the focus for investors who must maintain equity allocations continues to be a relative game.
Stocks remain under pressure in the U.S., with the S&P 500 and the NASDAQ 100 closing lower for the seventh consecutive week.
The bears remain in the control of the trend for the S&P 500, which closed lower for a seventh consecutive week last week.
Equities have staged a sharp four-day relief rally, a good starting point to arresting the decline that has gripped markets for much of 2022.
Think market research isn’t for you? Think again. Shelly and Dan break down why we created Research by Potomac and who it’s for.
Short-term breadth is making a recovery attempt from washed-out levels, leaving the door open to potentially attack the major moving averages from below.
Except for Energy, there are few compelling absolute trends in the market. Some groups are trying to stage rebounds from logical support levels.
Global Equity & Interest Rate volatility continues to take its toll on balanced investors, with Commodities being the only space that’s held its ground.
The losing streaks for U.S. and global equity markets continue to expand, and it is hard to make a compelling case for the asset class.
Equities remain under pressure, with the S&P 500 and NASDAQ 100 notching six-week losing streaks.
With equities under pressure, it may be surprising to see Small Caps holding up relative to Large Caps over the past two weeks.
With the S&P 500 under pressure for a sixth consecutive week, is it not surprising to see the risk-off trends continue to play out.
It is bad. The question is, “is it bad enough?” We are not seeing divergences that lead us to believe that a durable bottom is in place.
Unimmune to the selling pressure, Utilities have finally given way to the market-wide volatility that’s gripped the indexes and sectors alike.
The only good thing that we can say about the breadth picture is that we have nothing good to say about the breadth picture.
With stocks under pressure, sentiment has reached levels of excess fear.
Dan Russo and Drew Wells highlight Quality relative to Microcaps, S&P 500 and ATRs, Value, Growth, CCC or below OIS, and more.
The growth areas of the market remain under pressure on an absolute and relative basis.
Stocks in the U.S. and globally remain under pressure and in a defensive posture as rallies are being sold below declining moving averages.
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The message from the themes that we track continues to be one of risk aversion on the part of investors.
There was some improvement in the breadth metrics, rebounding slightly from the depressed levels that were seen in the previous week.
Bearish sentiment has moderated a bit over the past week as the S&P 500 and the NASDAQ 100 continue to test important areas of support.
Breadth in the space has become a condition of “so bad, it’s good.” Risk management remains key at these levels.
Over the past week, we have learned that in a bear market, even the defensive sectors eventually come under attack.
Key support levels are being tested or broken for equities around the world. Commodities remained the leading asset class and closed higher.
Risk ratios continue to send the same message of investors’ unwillingness to take risk within the markets.
Market volatility has taken its toll on market breadth over the past week, as readings have declined broadly.
Across asset classes, timeframes, and geographies, price momentum continues to confound individual investors and hardened market researchers.
The S&P 500 and the NASDAQ 100 have traded to key support levels, while the S&P 600 has broken below.
Investors who must maintain an allocation to U.S. equities are now likely playing a relative game, finding pockets of the market which are less bad.
Dan Russo and Drew Wells highlight the Bloomberg Commodity Index, S&P 500, QQQ/RSP, U.S. Dollar Index, and more.
Key support levels haven’t broken, but there’s no denying the bearish bias to current trends we’ve been highlighting for the past few weeks.
Equities remain offered while treasuries fail to provide much cover. Commodities retain their bullish trend but were not spared last week.
Themes and relationships that we track in this note have continued to send the message that there is a lack of risk appetite.