Key Takeaway: Bonds make good on their resolution to take rate hikes more seriously. Breadth thrust prospects are fading but global resiliency is encouraging. Fed will be late to the rate hiking party and so recent tightening cycles may not be as relevant.
Sector-level volatility is producing big swings in relative strength rankings. Thanks to a double-digit positive weekly return (while the median sector was down), Energy surged to the top of our rankings, followed by Consumer Staples in the number two spot.
Financials also surged in the rankings and joined Staples and Energy in making new highs last week.
Health Care, Technology and Consumer Discretionary all plummeted in the rankings, with weakness being seen across various capitalization levels.
In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
Commodities Keep Cruising
Despite copper remaining range-bound and the CRB index stuck below its October highs from last year, our equal-weight commodity index hit fresh 8-year highs last week. This speaks to broad participation and strength among commodities, and is supportive of our view that a new commodity supercycle is upon us. This index making new highs is also excellent confirmation of the breakouts in the US 10-year yield, and energy and financial stocks. We think these areas of the market will continue to do well. Though we’re definitely not out of the woods, we are beginning to see signs that the market is finding its way. Our equal-weight commodity index at its highest level in eight years is definitely one for the bulls. After a prolonged period of consolidation in 2021, we think commodities are ready to make a fresh leg higher.
On days and weeks like this, I love to look for opportunities to sell premium into the elevated implied volatilities we're seeing rising across the board. With $VIX back up above 20, you'd think there's been plenty to pick from.
Problem is, I haven't found any delta-neutral setups that look good today. Too many busted charts on the most liquid ETFs makes finding support levels that both make sense and offer enough premium to make it worthwhile from a safety standpoint hard to find.
So, as always, I reached out to my team from some other ideas.
We've been asking the question: "how bad can things be if we're seeing this kind of relative and absolute strength in the banking and financial sectors?"
Steve Strazza served up an interesting bullish play that is either a gift of a pullback, or we're buying the top. If you're market the bullish, then you gotta believe this idea has merit.
Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.
By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.
Let's jump right into it with some of the major takeaways from this week's report:
* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.
Macro Universe:
Our macro universe was red this week as 68% of our list closed lower with a median return of -0.71%.
The US 10-Year Yield $TNX was the winner, gaining about 26bps on the week.
The biggest loser was Russell 1000 Growth $IWF, with a weekly loss of -4.84%.
There was a 4% drop in the percentage of assets on our list within 5% of their 52-week highs – currently at 51%.
21% of our macro list made fresh 4-week highs, 13...
Over the last few weeks, we've been pointing to the growing leverage in the derivative markets exacerbating volatility.
In our last report, we also outlined how we're anticipating this to unwind in the coming weeks. This continues to be the key theme for the first quarter.
Additionally, a variety of metrics suggest the market is strongly in oversold conditions, offering a favorable level for long-term investors to add to spot positions.
Meanwhile, derivatives and macro conditions present a headwind for speculative dip-buyers.
We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.