Chart of the Day: Price Change vs. Total Return
Bulls Set a New High
Bullish sentiment continued its recent run of increases according to the weekly AAII individual investor sentiment survey. Hitting 33.3% this week, bulls are at the highest level since the last week of 2021. That 2022 is nearly 2/3 complete and we still haven’t seen a bullish reading over 33.3% tells you how negative investors have been this year.
Bears also ticked up this week reaching 37.2% versus 36.7% last week. While bearish sentiment has only been below 40% for three weeks in a row, that is the longest stretch of sub-40% readings since the start of the year.
With more bears than bulls once again this week, the bull-bear spread has now been negative for 20 straight weeks.
With both bulls and bears higher, neutral sentiment was the only reading to fall this week. Neutral sentiment dropped 1.7 percentage points from 31.2% down to 29.5%. That was only the lowest reading in four weeks as neutral sentiment sits the closest to its historical average of 31.4%. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke Morning Lineup — 8/18/22 — The Rise of the Utes
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“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.” – Edwin Lefèvre, Reminiscences Of A Stock Operator
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US equity futures are slightly higher ahead of the open this morning as jobless claims just came in weaker (better) than expected and Philly Fed came in stronger than expected. Outside of the 8:30 AM ET data, there’s not much else going on today.
The S&P 500’s action around resistance at its 200-DMA continues to be watched closely by traders. Yesterday’s declines continued the pullback that began late in the day on Tuesday when the index touched up against the 200-DMA in afternoon trading. To get above the 200-day at this point, the index needs to rally about 1.25% from yesterday’s close.
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Bespoke Baskets Update — August 2022
Daily Sector Snapshot — 8/17/22
Chart(s) of the Day: Breakouts
10-Day A/D Line Overbought for 15 Days
In an earlier tweet, we pointed out the elevated readings across 10-day advance decline lines in our Sector Snapshot. Not only is the 10-Day A/D line for the S&P 500 approaching one-year highs (as of yesterday’s close), but it has been “overbought” for the last 15 trading days.
Going back to the start of our data in 1990, there have only been eight other times in which the S&P 500’s 10-day A/D line has been overbought for 15 days in a row or more. The last time such a steak was observed was at the start of 2019 which ended at 22 days. That tied for the March 2016 streak for the longest on record back to 1990. We would also note that other than one streak in the first couple of months of 1991, nearly all of these long streaks with an overbought 10-day A/D line occurred since 2010. In other words, consistently impressive breadth by this measure has largely been a recent phenomenon.
This is not the only impressive breadth signal we have covered of late. For example, in yesterday’s Chart of the Day we highlighted that more than 90% of S&P 500 stocks were above their 50-DMAs. Prior times when we’ve seen that reading spike above 90% have been followed by strong returns in the months and year ahead. Looking at the past times in which the 10-day advance decline line has been overbought for 15 days in a row, forward performance of the S&P 500 has not been considerably stronger than the norm. From that 15th day, the S&P has risen half the time one week out. One and three month returns are more consistently positive but weaker than the norm on a median basis. In the year after the long overbought A/D streaks listed below, though, the S&P was higher 7 of 8 times for an average gain of 11.1%.
Below is a chart of the S&P 500 since its 2009 Financial Crisis low. As shown, most of these overbought A/D line streaks have occurred as the index was recovering from some sort of sell off. Only one of them (in early 2018) came about at the time of a notable peak in the index. Click here to learn more about Bespoke’s premium stock market research service.
Moving Averages Putting Up a Fight
Just as the S&P 500 ran into some resistance yesterday at its 200-day moving average (DMA), we’ve seen the same pattern play out in a number of commodities. Two of the more high-profile ones have been copper and crude oil.
Copper fell out of bed in the late spring and early summer, losing a third of its value. Along with the equity market, copper has seen a late-summer rally, but things came to a screeching halt right at the 50-DMA last Thursday. Copper has been down on two of the last three trading days and hasn’t been able to trade back above that elusive 50-DMA since. Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.
Crude oil has been just as weak as copper lately, trading in a well-defined downtrend and breaking below its 200-DMA in early August. There was a little bit of a bounce last week, but resistance came into play at the 200-DMA, and after making another lower high, it has since made another lower low.
When stock, commodity, bond, or any other asset class is in a well-defined downtrend, the first thing they have to do to break out of their funks is clear resistance at key moving averages like the 50 and/or 200-DMA. In the case of copper and crude, they have both recently come up short. The S&P 500, again, is facing some resistance at its 200-DMA, but at least it has managed to clear its 50-DMA which it did in the second half of July.
Bespoke’s Morning Lineup – 8/17/22 – Not Much of a Second Effort
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“What started as a temporary measure driven by the pandemic is now our new standard.” – Brian Cornell
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After Walmart (WMT) capped off the strongest earnings season for US stocks in years, a bit of a hangover appears to have set in for investors this morning. Futures were only modestly negative in the middle of the night, but there has been a steady drift lower throughout the early morning hours to the point where S&P 500 futures have traded down over 75 basis points as we type this. Looking for a culprit, earnings don’t fit as a narrative. The most high-profile report this morning has been Target (TGT) which reported weaker-than-expected results, but the stock is only trading down 2%. Hardly enough to warrant a decline of this magnitude. Trading in Europe may be to blame as major benchmarks in the region are down following a higher-than-expected inflation report in the UK that pushed the y/y rate above 10%. With the FOMC Minutes on tap, maybe investors are fearing some hawkish text in the minutes.
Whatever the cause, after yesterday’s rally screeched to a halt just shy of the 200-day moving average (DMA), the bulls’ second effort looks pretty weak at this point. We’ll see if Retail Sales either add to the misery or put a pep in the market’s step.
Today’s Morning Lineup discusses earnings and market news from Europe and the Americas, overnight economic data, and much more.
Walmart’s (WMT) earnings report after the close yesterday marked what we generally consider to be the unofficial end to earnings season. If you’re a bull, you’re probably sad to see this one come to an end. Through yesterday’s close, the S&P 500 was up over 10% since earnings season began July 8th, and that represents the best earnings season performance for the index since the Q2 reporting period in 2009! Since the start of 2009, the just-completed earnings season also marks the 13th time that the S&P 500 has rallied 5% or more during an earnings season (six weeks from the Friday before the first big banks report numbers).
With strong performance during the reporting period, the natural question for investors is whether the gains we have seen have been borrowed from the future. Looking back at prior strong earnings seasons, that doesn’t appear to be the case. In the 12 prior reporting periods, the S&P 500’s median change from the end of earnings season through quarter-end was a gain of 2.38% with positive returns 75% of the time. That’s actually modestly better than the median gain of 1.75% and positive returns 73% of the time for the remainder of all other quarters.
Instead of borrowing from future gains this earnings season, maybe the S&P 500 was just collecting on its ‘loan’ during the June swoon?
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