As equities continue to sell off, sentiment continues to tank in a broad sense.  That being said, there was actually a higher share of respondents to the AAII survey reporting bullish sentiment this week.  Coming off the lowest level since July 2020, bullish sentiment rose slightly and remains historically low at 23.1%.

Bearish sentiment, meanwhile, has surged 22.4 percentage points in the past month with more than half of respondents falling in the bearish camp this week.  At 52.9%, it was the highest reading since the week of April 11, 2013. In other words, sentiment this week among survey respondents was more negative than even the COVID Crash.  In all weeks since the start of the survey in 1987, there have only been 40 other weeks with as high if not higher of a reading.

Given the massive increase in bearish sentiment, the bull-bear spread has also outright collapsed. At -29.8, bears outnumber bulls by the widest margin again since April 2013.

Given bullish sentiment was actually higher as bears surged, the difference came from a big drop in neutral sentiment. Neutral sentiment fell by 8.4 percentage points to 23.9%.  That is only the lowest neutral sentiment reading since the first week of September of last year, but it was the biggest week-over-week decline since November 2020.

The AAII survey was far from being alone in indicating bearish sentiment.  The Investors Intelligence survey of newsletter writers saw the most bearish readings since the spring of 2020 and the NAAIM Exposure index also saw one of the more modest readings of the past year. Using all of these readings combined, we created our sentiment composite below to get a more general feel for sentiment across these indicators.  This week, that composite fell below -1 meaning on average sentiment indicators are a full standard deviation below (or in a bearish direction) their normal reading.   Of course, that was the first time such a reading has been observed since the COVID crash.

With data beginning in 2006, there have only been nine other times in which the sentiment composite has fallen below -1 for the first time in at least three months.  In the table below, we show those instances and how the S&P 500 has performed going forward. Overall, that bearish sentiment proves to be correct in the next week as the S&P 500 has declined two-thirds of the time. One month to one year later, though, returns have been biased to the positive side with positive returns at least two-thirds of the time.   Click here to view Bespoke’s premium membership options.

Initial jobless claims fell to 260K this week after last week’s higher than expected reading that was revised even higher to 286K this week.  Claims were expected to drop this week, but the actual decline was 5K larger than forecasts.

The beginning of the year typically sees a seasonal high in claims which abates into the early spring.  In fact, the third (last week) and fourth (this week) weeks of the year are some of the most consistent periods for week over week declines in the NSA number. Specifically, the third week of the year has never seen a WoW increase in the NSA number and the fourth week of the year (this week) has only seen claims rise 9% of the time; the fifth-best of any week of the year.

Given this, last week’s weaker than expected adjusted number was a result of a smaller than normal decline in NSA claims. This week’s drop of 73.3K to 267.6K was again smaller than normal, but much closer to the historical average of a 76.5K decline. In other words, the actual drop in claims before seasonal adjustment continues to be weaker than normal for this point of the year potentially as a result of high COVID case counts. Regardless, the actual level of claims for the current week of the year is basically right in line with the average from the few years prior to the pandemic.

Continuing claims are delayed an extra week to the initial claims number making the most recent print through the week of January 14th.  Claims rose that week from 1.624 million to 1.675 million. That was the third increase in a row, but all things considered, it was only a minor increase as the level of claims remains well below the range of the past several decades and is even below levels from the second half of December.   Click here to view Bespoke’s premium membership options.

Earlier today, we updated our Global Macro Dashboard highlighting major economic data points of 22 major global economies. In the table below, we show the ETFs tracking the stock markets of those same countries and their performance YTD, since their 52-week high, and where that leaves them within their trading ranges (standard deviations from the 50-DMA).

With only four ETFs up in a meaningful way year to date, heavy selling has not just been isolated to the US.  Brazil (EWZ) has bucked the trend, though, rallying 10.33%.  Despite the strong start to the year, EWZ is still one of the ETFs down the most from its 52-week high.  The huge rally this month leaves EWZ deeply overbought alongside South Africa (EZA). While there are only two overbought countries, nearly half of the list is oversold. South Korea is the most oversold of these, but it has not experienced the largest decline this year. Russia (RSX) takes that crown as RSX has fallen 16.65% YTD as geopolitical tensions with Ukraine arise and the threat of sanctions weighs on that market

As previously mentioned, two of the biggest movers are the first half of the BRIC countries. While the decline for RSX recently has been severe, it is a leg lower in a longer-term downtrend that has been in place since the fall. Brazil, meanwhile, has been in a downtrend since last spring, but the recent surge has resulted in it definitively breaking that trend.  China’s (MCHI) downtrend is approaching a year in length, but there has not been much in the way of technical improvements.  The same can also be said for India (INDA) which has failed to reclaim its 50-DMA.

While no other BRIC country ETF has broken out of its downtrend, Hong Kong (EWH) and South Africa (EZA) have both been stronger. That being said, EWH has begun to reverse lower after reaching overbought territory, and EZA failed to take out resistance at the fall highs and has since been consolidating. Click here to view Bespoke’s premium membership options.

The recent rise in rates has lifted the national average for a 30-year fixed-rate mortgage to 3.68% which is nearly a half percentage point higher than it was just one month ago. That is also the highest rate since April 2020.

Such a large jump in rates in only a month’s span is not totally without historical precedent, but it is on the large side of monthly moves.  Going back to 1998, the current one-month change in rates stands in the top 2% of all periods.  It is also the largest jump since March 2020.

Weekly data from the Mortgage Bankers Association released this morning has reflected that rise in rates. Mortgage applications fell over 7% WoW on a seasonally adjusted basis. Refinance applications experienced a sharper 12.6% WoW decline as the index hit the lowest level since the first week of 2020 bringing the total decline over the past month up to 17.5%. While applications are falling somewhat dramatically, current levels are now only slightly above the historical average.

The moves in refinance applications relative to mortgage rates are consistent with what could be reasoned. As the price to (re)finance a home rises, there will be fewer applications, and the data is consistent with that line of thought. In the chart below, we show the relationship between the MoM changes in mortgage rates and refinance applications.  Typically as rates rise, mortgage apps fall and vice versa. The most recent week’s data sits toward a more extreme end of things though the drop in refinance applications is not as large as might have been expected.

Pivoting over to related stocks, the iShares Home Construction ETF (ITB) is up half of one percent today, albeit having come off of the morning’s highs on the weaker than expected MBA numbers and stronger than expected new home sales figures. The bounce over the past few days brings ITB back up toward its 200-DMA which acted as support back in the early fall. Overall, ITB’s pandemic uptrend is also still more or less in place.

Meanwhile, mortgage REITs (which is a more direct play on MBA data) proxied by the iShares Mortgage Real Estate ETF (REM) have gotten hit harder recently with a more defined downtrend since the late fall. While it too is bouncing in the past few sessions with a 1.6% gain today, the technical damage has been more severe than the homebuilders.Click here to view Bespoke’s premium membership options.

The latest regional manufacturing index out of the Richmond Fed was released today covering the month of January. Whereas the Empire Fed reading plummeted and the Philly Fed bounced, the Richmond Fed’s index more went the way of the former. The index was cut in half falling 8 points to a level of 8. The current level continues to indicate expansionary activity but at a slower rate.

Breadth was weak in the report with most categories falling month over month across both current conditions and expectations.  A handful of these were historically large declines too. For example, the decline in the Service Expenditure expectations index was the largest on record. Whereas last month many categories saw readings in the upper few percentiles of their historical ranges, this month most were more middling. But there are some exceptions as prices, vendor lead times, and wages all remain at or close to record highs.

Growth in new orders slowed significantly. The 11 point drop ranks in the 13th percentile of all monthly changes. The drop in backlogs was much more dramatic, though, with its 24 point decline ranking as the third-largest on record. Even though shipments accelerated, so too did vendor lead times with a record 15 point MoM increase. While there was that sharp increase, the index remains below the levels it sat at for most of last year.

Another area to experience a sharp decline in January was the index for the number of employees. The 15 point decline ranks as the sixth-largest on record indicating a rapid deceleration in hiring.  The average workweek also declined meaning existing employees worked fewer hours. The index tracking the availability of skills continued to recover off of historic lows, but the current levels still point to a large talent gap. Wages also saw a minor bump this month, but expectations fell sharply with the month-over-month decline tied for the second-largest drop on record.

Not only were prices for labor higher but so too were prices paid and received.  Both indices set new record highs well above any reading observed prior to the pandemic.  Expectations moved in opposite directions though.  Expectations for prices paid fell to a 5.83% annualized rate while expectations for prices received rose to a record high of 5.9%. Click here to view Bespoke’s premium membership options.

Breadth has been all-around bad recently. For example, as we highlighted in our Sector Snapshot, the 10-day advance-decline lines for the S&P 500 and the Tech sector are hovering close to the lowest levels since March 2020. We’re about as oversold as it gets from a short-term trading perspective.  The semis are starting to break down too.  Today, assuming it keeps up the pace of declines, the Philly SOX index is looking to close below its 200-DMA for the first time since the spring of 2020 as the uptrend off the COVID lows is on the ropes.

It has been well over a year since the Philadelphia Semiconductor index, or the SOX, has last closed below its 200-DMA.  Assuming no historic jaw-dropping afternoon rally the likes of which haven’t been seen since…yesterday, the group is looking to end a 435 trading day streak of closes above its 200-DMA.  Going back through the history of the index beginning in the mid-1990s, there have only been three streaks that have gone on for longer.

While it is not a particularly large sample size, given its reputation as a leading sector, we wanted to highlight the performance of the semis and the broad market after long streaks above the 200-DMA for semis come to an end.  The only outright consistently negative performance in the following weeks and months was in 2000 during the dot com bust following the end of the streak in August 2000. Overall, median performance one week and one month later has been far stronger than the norm for the semis, Tech, and S&P 500.  Going further out, things are more mixed relative to each index’s respective norm. For example, the semis are typically worse than normal 3 and 6 months out but have a larger than normal median performance one year out.  Technology and the S&P 500 more broadly, meanwhile, have seen worse than normal performance 6 and 12 months out and inline performance 3 months later.

A triple play is when a company reports better than expected results on the top and bottom line while also raising guidance. We consider these to be the gold standard for earnings, generally speaking, as they indicate a strong fundamental picture relative to expectations. Since the big banks kicked off earnings, though, triple plays have been hard to come by with only 5 of 92 total reports having been triple plays, and those five stocks have averaged a 1.61% decline on their earnings reaction days; slightly worse than the 1.56% average decline for all stocks reporting earnings so far.

Expanding the time frame, in the chart below we show the percentage of stocks reporting triple plays on a three-month rolling basis similar to the charts of beat rates in our Earnings Explorer tool.  As shown, the pandemic has been a boon for triple plays as a result of a mix of pessimistic forecasts and strong rebounds. The percentage of stocks reporting triple plays over the past two years has been unlike anything in the history of our data going back to 2001.  With that said, gravity has been hitting the triple play rate as it is heads into the current earnings season at the low end of the range since the fall of 2020.

With triple plays more frequent, they appeared to have lost their luster with weaker full-day changes on earnings than what was observed for most of the time prior to the pandemic.  As the triple play rate has come down, stock price reactions have improved but are still on the weaker side relative to history. Currently, over the past three months the average triple play has rallied a little over 4% the day after earnings compared to 5.21% historically.  Click here to view Bespoke’s premium membership options.  You can monitor earnings triple plays on a daily basis with a Premium membership.

In an earlier post, we highlighted weak breadth for the S&P 500 Tech sector which now has just 9.2% of stocks above their 50-day moving averages. Pivoting over to the tech-heavy NASDAQ 100, another look at bad breadth is the new low in the net percentage of stocks setting new 52-week highs versus 52-week lows.  As shown below, a net 15.68% of the NASDAQ 100 is at 52-week lows today which is the lowest reading since the COVID Crash in March 2020.  At the lows during the COVID Crash, nearly half of the index hit 52-week lows.  There have only been a few other times going back to the beginning of the data in early 2001 in which this reading got this low.  The current reading is only in the 2nd percentile of the historical range.

The chart below shows the distance from 52-week high for all of the Nasdaq 100’s members.  There are currently only a dozen names that are currently within single-digit percentage points from their 52-week highs, while the average stock in the index is now 25.2% below its 52-week high.  Click here to view Bespoke’s premium membership options.

As of mid-day, the only sector that is not down over 2% is Consumer Staples, and even that defensive sector is down over 1.5%.  As a result of the big declines across the market recently, there has been a notable drop in the percentage of stocks trading above their moving averages. Just a little over a week ago, over half of S&P 500 stocks traded above their 50-DMAs. Today, that reading is closer to a quarter of the index. As for the individual sectors, the readings for Consumer Discretionary, Real Estate, and Technology have fallen into single digits.  One area that is holding up remarkably well is Energy with over 90% of its stocks above their 50-DMAs. Consumer Staples is the only other sector with more than three-quarters of its stocks above their 50-DMAs.

The readings with regards to the longer-term 200-DMA have held up better.   41% of the S&P 500 is above their 200-DMAs, but that too is down considerably versus the start of the year when three-quarters of the index was above their moving averages.  Once again, Energy stands out with a far healthier reading at 90.5%, but that is actually the first sub-100% reading for Energy since January 6th.  Real Estate, Financials, Consumer Staples, and Utilities have the next strongest readings.  Click here to view Bespoke’s premium membership options.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

While you’re here, join Bespoke Premium with a 30-day free trial!

Commodities

Permian Basin: high oil price breathes new life into US shale by Myles McCormick (FT)

An on-the-ground report from the heart of US shale country and the good times that are rolling – for now – in West Texas as oil prices run far above break-evens for local producers. [Link; paywall]

Steelmaker CEO Warns North America Market a ‘Falling Knife’ by Joe Deaux (Bloomberg)

Canadian steelmaker Stelco is seeing a sharp drop in demand and building inventories amidst falling steel prices thanks to weak activity in construction and automaking industries and high production from mills [Link; soft paywall]

Government

Police in this tiny Alabama town suck drivers into legal ‘black hole’ by John Archibald (AL.com)

A horror story from a small suburb outside of Birmingham that has turned its police force into a revenue collection agency, complete with shocking over-spending by the department and invented charges designed to justify their budget. [Link]

The strange case of the casino, the Senate leader and the defense bill by Mark Satter (Roll Call)

An effort South Carolina’s Catawba Indian Nation to build a casino in North Carolina has led to strange Congressional bedfellows and a unique example of how the modern Congress functions: interest groups first, regular order out the window. [Link]

Sold To You

Robinhood and Democracy Promotion by Ranjan Roy (Margins)

A feature for Robinhood users that granted them exclusive access to IPOs has created massive losses for retail investors who opted in, blurring the lines between regular customer communications and marketing for the brokerage platform. [Link]

Renaissance Investor Exodus Nears $15 Billion Despite 2021 Gains by Hema Parmar (Bloomberg)

While Renaissance Technologies’ flagship fund delivered 20% returns in 2021, investors aren’t pleased thanks to underperformance versus the fund’s Medallion fund; billions have flowed out of the fund’s public vehicles over the past year. [Link; soft paywall]

Bonds

German Benchmark Bond Yield Briefly Turns Positive for First Time Since 2019 by Anna Hirtenstein (WSJ)

Increases in US Treasury bond yields have helped push up the yields on global government debt, and it actually costs Germany money to borrow in nominal terms now for the first time in almost two years. [Link; paywall]

Bond Market Forecasts Bad Economic News by Greg Ip (WSJ)

While we wouldn’t necessarily frame it as “bad news”, bond prices don’t reflect much worry over inflation or high policy rates needed to combat that inflation. [Link; paywall]

Puzzles

The Best Starting Words to Win at Wordle by Harry Guiness (Wired)

If you’ve gotten deep in to Wordle, you might want to brows this article which helps narrow down the field with some optimal guesses. [Link]

COVID

‘Nocebo’ effect blamed for two-thirds of COVID vaccine symptoms: Study by Hannah Sparks (NYP)

A study of vaccine side-effects report suggest that about two-thirds of side-effects from vaccines were psycho-somatic, given the level of side-effects reported by those who received placebo vaccines during clinical trials. [Link; auto-playing video]

This Week In Tech

‘It’s All Just Wild’: Tech Start-Ups Reach a New Peak of Froth by Erin Griffith (NYT)

More than 900 tech start-ups are unicorns, and investors are getting in to massive scrums over the right to buy in to the latest hot deal. [Link; soft paywall]

Sobriety

I Got Sober in the Pandemic. It Saved My Life. by Danielle Tcholakian (Jezebel)

A wonderful essay about finding community and escaping demons amidst the pandemic, with a little help from caring friends and none at all from booze. [Link]

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Have a great weekend!