The S&P 500 has found some support in the past week but sentiment readings from AAII have not shown a major shift toward bullish sentiment.  The percentage of respondents reporting as bullish this week fell for the second week in a row to 25.5%.  That is still above the low of 22.4% from the week of 9/15.

Not only did bullish sentiment fall but so too did bearish sentiment.  Whereas over 40% of respondents reported as bears last week, this week, the reading fell to 36.8%.  That remains elevated relative to the past year, but it also marks the lowest level of bearish sentiment since September 9th.

That means neutral sentiment saw a notable jump to 37.7% this week borrowing from the losses to the bullish and bearish camps.  Since the start of the pandemic, this week’s reading ranks as the fifth-highest and is 6.3 percentage points above the historical average. That makes for the first time since the end of July that neutral sentiment was the predominant sentiment reading.

Apart from the AAII survey, the National Association of Active Investment Managers’ (NAAIM) Exposure Index also showed a reversal in pessimism this week.  The index measures managers’ exposure to US equities. Readings of positive/negative 200 would indicate reporting managers are levered long/short, positive/negative 100 is fully long/short, and zero would be market neutral.  Last week, this index hit a low of 55 which was the weakest reading since the spring. This week, we saw a modest bounce to 68.6. While improved, that is still below the spring and summer’s range.  Click here to view Bespoke’s premium membership options.

After drifting higher throughout September, seasonally adjusted jobless claims finally saw an improvement this week.  Not only did claims drop for the first time since the beginning of September, but the 38K decline from last week’s 2K upwardly revised number exceeded expectations of a 16K decline.  Now at 326K, claims are at the second-lowest level of the pandemic behind the September 3rd reading of 312K.

On an unadjusted basis, claims were significantly lower.  The non-seasonally adjusted number fell 41.4K to 258.9K.  That set a new low for the pandemic and the week over week drop was the largest in ten weeks. With the expiration of pandemic era programs, PUA claims continue to account for an increasingly inconsequential share of initial claims.

We would also note that the large decline in regular state claims goes completely against the usual seasonal pattern for the current week of the year.  The 40th week of the year has historically seen claims rise WoW 87% of the time.  In fact, that ranks as fourth highest in terms of the week of the year that most consistently have seen claims move higher week over week. In other words, the decline this week was strong enough to totally outpace any seasonal headwind.

Continuing jobless claims also came in below expectations this week. Regular state continuing claims through the week of September 25th fell to 2.714 million from the prior week’s 9K upwardly revised reading of 2.811 million.  That makes for the lowest level of claims since March 2020 when claims were less than 1 million lower than current levels.

Including all other programs creates an additional week of lag making the most recent data through September 17th; the second week after the expiration of pandemic era programs’ expiration. Once again, the unwind in programs like PUA and PEUC drove the aggregate decline. Those two programs accounted for a combined 772.56K decline.  Since the last week of August, these two programs together have seen claims fall by over 8 million. Those declines on top of nearly every other program also shedding claims means total continuing claims fell to a new low of 4.18 million; roughly a third of the level at the end of August.  Click here to view Bespoke’s premium membership options.

Historically, the strongest part of the year for gas prices has been the summer. From the start of the year through the late spring, prices tend to rise, flattening out over the summer months, then declining from Labor Day into year’s end.  We’re now about a month beyond Labor Day and 2021 gas prices are bucking that seasonal trend a bit.  AAA’s national average for a gallon of regular gas just hit a new high for the year at $3.22. That is up 42.9% since the start of the year which compares to an average 14% YTD gain at this point of the year from 2005 through 2020.  The only two years with larger YTD gains were 2005 and 2009.

The recent move higher in gas prices again goes against the historical seasonal average since 2005, but it is not exactly unheard of for prices to rise slightly from the end of August to the first week of October, and that’s even more true in recent years.  As shown in the table below, gas prices consistently fell from August 31 to October 6th from the mid-2000s to 2015, but since then it has not been uncommon to see prices rise in that time frame.  In fact, this year’s 1.48% gain since the end of August is middling versus well over 2% gains in 2018 and 2019.

Regardless of seasonal patterns, the recent increases leave the national average for a gallon of regular at the highest level since October 2014 which hurts consumers where it matters most- the wallet.  Click here to view Bespoke’s premium membership options.

Peering across the ETFs tracking the stock markets of the 23 global economies tracked in our Global Macro Dashboard, the US is far from alone in having declined recently.  As shown in our matrix below, the US (SPY) hit its 52-week high back on September 2nd and only a handful of other countries hit their own 52-week highs after that date: Russia (RSX), Norway (ENOR), Japan (EW), and Taiwan (EWT). Russia is perhaps the most notable of these countries. Not only was it the ETF to have most recently hit a 52-week high, but it is also the only one that is currently above its levels from 9/2 and the only one that is trading over one standard deviation above its 50-DMA. In fact, RSX is teetering on extreme overbought territory.  As for the other ETFs, Norway (ENOR), India (INDA), and Malaysia (EWM) are the only ones that are even above their 50-DMAs at the moment.

Again, Russia has experienced notable outperformance relative to most other country ETFs, but that is especially the case relative to other BRIC countries.  Brazil (EWZ) and China (MCHI) have been in steady multi-month downtrends since their 52-week highs back in the first couple of months of the year. As a result of those downtrends, these two also have the worst YTD performance of all these country ETFs whereas RSX is the top performer followed by India (INDA). Additionally, since the US high on 9/2, Brazil has fallen 12.82% which ranks as the worst performance of any of these countries in that time frame.  Only South Korea (EWY) has also fallen double digits in that same span of time.  While it has also pulled back from its highs, the other BRIC country, India (INDA), is perhaps more similar to RSX with a steady uptrend over the past year. Currently, INDA is within 1% of its highs as well.

Pivoting away from EM markets, the G7 countries have broadly traded sideways over the past few months and are currently at the lower end of those ranges. There are exceptions to this though. Separating the downdraft over the past month, the US has actually trended higher since the spring.  Germany (EWG) meanwhile is the only one that has totally broken down. In fact, it is currently the most oversold of all the 23 country ETFs highlighted above. With respect to its own history, the z-score readings (how many standard deviations from its 50-DMA the current price is) this month have all ranked in the bottom few percentiles of all periods since EWG began trading in 1996. Although EWG has broken down and is at the lowest level in months, Japan (EWJ) has experienced an even sharper short-term decline.  In the past five days, EWJ has been the worst performer shedding 5.44%. EWJ has now erased all of the spike-up that occurred at the end of August through last month. If there is any silver lining to be found with regards to that decline, unlike EWG, Japan is for the time being above support at the summer lows.  Click here to view Bespoke’s premium membership options.

Facebook (FB) remains in the news today as former employee Frances Haugen testifies before a Senate panel.  The stock is bouncing back a bit after steep declines yesterday that came on the same day that most of the company’s websites and apps went dark for hours on end.  That goes for the rest of the FANG cohort as well.  As shown below, the NYSE FANG+ Index closed below its 200-DMA for the first time in 378 trading days yesterday. While it has not recovered all of yesterday’s losses with an inside day, the group is bouncing back significantly. In the process, the FANG+ Index has moved back above its 200-DMA.

Amazon (AMZN) and Facebook (FB) are similarly seeing inside days today recovering some of yesterday’s declines.  For AMZN, the bounce comes around support at the low end of the past year’s range. Meanwhile, for FB, the bounce comes in a bit of no man’s land in the middle of the range between its 50 and 200-DMAs. Similarly, Apple (AAPL) and Alphabet (GOOGL) are also now trading in between their 50 and 200-DMAs. Click here to view Bespoke’s premium membership options.

In an earlier post, we noted the long-term breakout of cotton futures in the context of what has been a historic short-term run. Elsewhere in the commodities space, there are other breakouts occurring today.  As shown in the first chart below, crude oil took out its July intraday high of $76.98 yesterday and it has continued to move above those levels today. While crude oil is now within one dollar of $80, natural gas is also hitting a new high as the commodity continues to surge on supply concerns as we discussed in today’s Morning Lineup.

As both commodities rapidly trend higher, comparing the two, natural gas comes out as the clear winner recently.  In the chart below we show the ratio of front-month crude oil futures to natural gas futures.  When the line is rising, oil is outperforming natural gas.  When the line is falling (as it is now), natural gas is outperforming oil.  Since this past March, the ratio of the two has been in a steady decline and it is now at the lowest levels in a little under one year.  Prior to that, the only lower readings in the ratio of the past five years was when crude prices went negative in April 2020 and in November 2018.  Click here to view Bespoke’s premium membership options.

Every year, the makeup and number of sectors that outperform the S&P 500 changes. This year, four sectors (Energy, Financials, Real Estate, and Communication Services) outperformed the S&P 500 through the end of Q3, while last year it was only three sectors that outperformed in the first three quarters of the year (Technology, Consumer Discretionary, and Communication Services).

As we all know, past performance does not indicate future performance, and in looking at sectors that have outperformed the S&P 500 in the first three quarters of prior years compared to how they performed in Q4, the same holds true. The table below lists the number of sectors that outperformed and underperformed the S&P 500 in the first three quarters of each year since 2000 and then shows their median performance during Q4 of the same year.  Looking at a summary of the annual results, it’s almost a coinflip as to whether or not the leading sectors in the first three quarters of a given year will continue to outperform in Q4.  On average, the sectors that outperform YTD through 9/30 have averaged a Q4 gain of 3.58% (median: +6.40%) with positive returns 76% of the time.  Sectors that lag the S&P 500 in the first three quarters of the year average a rest of year gain of 3.67% (median: 5.95%) with gains 71% of the time.  While the term ‘strength begets strength’ has historically been applicable to the broader market, at the sector level, buying the YTD winners (or losers) ahead of Q4 in expectation of continued momentum to close out the year (or a mean reversion bounce) hasn’t offered any material outperformance. Click here to view Bespoke’s premium membership options.

There is another commodity that can now be added to the list of assets that have experienced wild swings this year. Reminiscent of lumber earlier this year or natural gas more recently, in the agriculture space, cotton has experienced an explosive move to the upside.  As shown below, front-month futures were already seeing a solid move higher since last year’s lows. But in the 12 trading days since the recent low on September 20th, cotton has surged over 20%.  As of this writing, that leaves the commodity at the highest level in a little over a decade as it has broken out above the May 2014 and June 2016 highs.

Going back since 1990, there are not many examples of cotton rallying over 20% in the span of only 12 sessions; especially in more recent history. As shown in the second chart below, this is the first +20% rally in 12 days since June 2012 when cotton rose 28.38%. Going back over the decade leading up to that occurrence, there were a handful of other rallies of the same size if not larger.

Given the rapid rise in cotton prices, the commodity is now very extended relative to its 50-DMA. In fact, there has only been one time since 1990, March 2003, when cotton was as extended above its 50-DMA as measured in standard deviations.  With that said, there were some instances in which the overbought reading was at least similar though.  For example, November 2017, July 2016, March 2008, and December 2006 also saw cotton move to over 3.9 standard deviations above its 50-DMA as is the case today.

Given the surge in prices, speculator positioning around the commodity is overwhelmingly long.  Data from the CFTC’s Commitment of Traders report—which we also reviewed with regards to other assets in last night’s Closer—shows the percent of open interest for cotton futures is currently 40.97% net long.  That is the highest and first reading above 40% since the week of July 2018. It also ranks in the top 2% of all readings on record going back to 1986. In other words, speculators broadly have held a positive outlook on cotton and they have been proven correct.

As for agricultural commodities more broadly, cotton has not necessarily boosted the aggregate space. The Invesco DB Agriculture Fund (DBA) which tracks 10 agricultural commodities including cotton has remained in consolidation over the past several months with a failed attempt to break out of that range only a couple of days ago.  As for why the surge in cotton has not also led to a surge in DBA is that the commodity has a relatively low weighting accounting for just over 3% of net assets tying it with Feeder Cattle for the smallest weighted future of the ten tracked by the fund.   Click here to view Bespoke’s premium membership options.

Mega cap tech tracked by the NYSE FANG+ index is getting crushed today and is down 3.2% for its worst single-session since May 10th when it fell 3.6%.  One key difference between today and then is the technical damage done from a charting perspective.  Today’s drop brings the FANG group below its August 19th low and more importantly below its 200-DMA.  That marks the first close below its 200-DMA in 378 trading days. While the index does not have the most extensive history dating back to only to 2014, that makes for the second-longest such streak on record behind one that lasted 573 days ending almost exactly three years ago to the day.

Panning over the largest of the FANG stocks by market cap, most are still above their own 200-DMAs with the exception of Amazon (AMZN).  Like the index, each of these names have been breaking down a bit from a technicals standpoint.  In the case of Facebook (FB) and Alphabet (GOOGL), long-term uptrends are now broken.  In tonight’s Closer, we illustrate the impact that the decline of these stocks have had on the S&P 500. You can read more about the FANG breakdown and more in tonight’s Closer with a two-week Bespoke Institutional trial.