Chief U.S. Strategist for Ned Davis Research (NDR). The truth resists simplicity so let's debate in 280 characters. Charts over text. rt ≠ endorsements.
Friday's rally pushed the two breadth thrust indicators that were close over the top. 90.5% of stocks are above their 10-day moving averages. Since 1982, SPX has been higher 35 out of 36 times on year later. Past performance does not guarantee future results.
@NDR_Research
1/2
Russell 2000 on pace for 5th best day vs Russell 1000 on record. Other 4:
10/19/1987 - crash
10/10/2008 - Lehman
10/4/2011 - day after SPX low (euro debt crisis)
3/19/2020 - 2 trading days before pandemic low
This type of action has only come toward the end of big declines. 1/2
Many conflicting prophecies on economy and markets. A 🧵on how they could fit:
A bear market has never ended before the start of a recession. Most economists say US is not in recession but it's likely so logical conclusion is lows are not in place. Makes sense.
@NDR_RESEARCH
1/9
Going thru charts, these 5 stood out:
1. The market is entering the most bullish phase of the 4yr presidential cycle. But macro backdrop is terrible. Which will win?
We favor models over seasonality, but historical perspective provides useful context here.
@NDR_Research
1/5
Going thru charts, these 5 stood out:
Big picture: One of the biggest gaps between bullish technicals and macro concerns I can remember.
1. 89% of stocks in
@NDR_Research
universe >50-day moving averages, just shy of 90% breadth thrust threshold. Note: $SPX got there (92%). 1/5
The Fed has made it clear it plans to cut rates slowly. That should be music to the bulls' ears. $SPX ⬆️ more in 1st year of slow easing cycles vs fast ones.
Why? They can! (1984, 1995) Fast easing cycles (>4 cuts/yr) means something has gone wrong (2001, 2007)
@NDR_Research
1/4
Friday was a 14:1 up day (volume of advancing stocks 14x volume of declining stocks) using the
@NDR_Research
common stock data. It’s the 2nd 10:1 up day w/o a 10:1 down day. Remarkable considering the relatively minor pullback. Not stuff one normally sees in a bear market.
Going thru charts, these 5 stood out:
1. For tightening cycles, speed matters. Year 1 of slow cycles $SPX +10.5% vs -2.7% in fast cycles on avg.
Slow cycle = waits a meeting between hikes on avg. Subjective call, but 4-5 hikes + QT in 2022 is a fast cycle to us.
@NDR_Research
1/5
Our version of the Zweig Thrust Indicator (common stocks only) fired on Friday.
Crazy in the context of Fed, Omicron ba.2, Ukraine, commodities, etc. but breadth thrusts have been among the most consistent indicators since the financial crisis. 2/2
The $SPX fell 1.8% in Aug after surging 19.5% YTD thru July. The 13 previous times SPX +>10% thru July &⬇️in Aug, it rose every time Sept-Dec by avg of 9.9%. Just one data point, but it supports the case that the Aug decline was a pullback within an ongoing uptrend.
@NDR_RESEARCH
2018 is putting the cliché "it's a bull market somewhere" to the test. No asset class has gained >5% YTD for first time since at least 1972. Is this what QT looks like?
@NDR_Research
With the $SPX officially in correction territory, a friendly reminder that there have been 1.1 declines of at least 10% per year, on average. The odds of it turning into a 15% drop are 45%.
@NDR_Research
The
@NDR_Research
3-day price thrust indicator fired yesterday. It's the only short-term thrust indicator in our tool box that did not signal earlier this year.
Still taking a "trust but verify" approach to short-term technical indicators, but it's notable.
Going thru charts, these 5 stood out:
1. Friday was a 10.7:1 up day (using NDR Multi-Cap universe of stocks). With the 12/29’s 35:1 up day, it triggered a 2x 10:1 breadth thrust. SPX has risen at >2x its LT average for up to 6 months after signals, on average.
@NDR_RESEARCH
1/5
The Fed is preparing the markets for a rate cut. Cuts have been bullish on avg. The DJIA has been flat before the 1st cut & up 15% a year later.
Context matters, esp. vs the economic cycle. (Btw, we use the DJIA for more history but trends are similar w/SPX).
@NDR_Research
1/5
Got the first breadth thrust signal from last week's rally. >90% of stocks >10-day moving averages. Yes, this one fired in March. Trust but verify.
@NDR_Research
1/2
Lots of comments about poor market breadth. Some are valid but one that isn’t is saying most of the gains are driven by a few stocks. That’s how cap-weight indices work. YTD 4 stocks account for 50% of NDX gains. When NDX is up 10-25% median is 3.
@NDR_Research
1/3
The kicker is that technicals lead fundamentals. Macro looks terrible at the lows. That doesn't mean the economy won't eventually fall under the weight of the Fed, etc. (and market falls to new lows), but to dismiss technicals on macro concerns is ignoring market history.
Over 90% of stocks are above their 50-day moving averages, an important confirmation of short-term breadth thrust signals from late March/early April.
@NDR_Research
1/2
Going thru charts, these 5 stood out:
1. Recent pullback is typical for early December. Tax loss harvesting often precedes Santa Claus rally, and there are plenty of tax losses to harvest.
@NDR_Research
1/5
The NDR SPX Cycle Composite for 2021 peaks today.
Note that this is NOT a predictive model. It's a composite of 3 historical cycles: 1 yr, 4 yr (post-election) and 10 yr (yrs ending in 1). Think of it has history's view of what 2021 could look like.
@NDR_Research
Two breadth thrust indicators are on the verge of firing. 89.3% of stocks are above their 10-day moving averages. Bullish level is 90%. Note that this got close twice lately (89.8% on 12/27 and 81.0% on 2/2). In hindsight they were "good misses."
@NDR_Research
1/2
The biggest criticism I get for seasonal weakness in Sept is that since “everyone knows about it, it won’t happen this year.” And yet here we are.
@NDR_Research
Going thru charts, these 5 stood out. Today's topic: Growth vs Value
1. 2022 was the worst year for the R1G vs R1V since 2000. One may think Growth would rebound. Possible but once secular regimes flip they tend to persist. Value beat Growth every year 2001-2006
@NDR_Research
1/5
Going thru charts, these 5 stood out:
1. 2 types of indicators have turned negative. 1st are economically sensitive areas. Transports have been a good "real-time economic indicator" for stocks vs bonds, and they've gotten crushed (they're bouncing today).
@NDR_Research
1/5
If the last 8 months felt weird to you, well, you're right. The $SPX rose for 5 straight months then fell for 3 straight months for only the 4th time on record. 2 came at the start of cyclical bulls (2016 & 1975) & 1 occurred during the ultra-long 1939-42 bear.
@NDR_Research
1/7
Percent of $SPX stocks at 20-day new highs rose above 55% for first time since June 2020 (concept thanks to Jeff DeGraaf). This marks the 3rd breadth thrust signal in the last 8 trading sessions. Broader than off the March and May lows.
@WillieDelwiche
@RenMacLLC
Monday was a 92:1 down day, the worst dec vol/adv vol day since 11/19/2011.
3 consecutive 10:1 down days for 1st time since Aug 2015 based on
@NDR_Research
Multi-Cap universe. Using NYSE data back to 1940, only other cases were in Feb 1941, Aug 1943, and Sept 1953.
"It's always a bull market somewhere."
2018:, " Hold my beer."
No major asset class gained 5% for the first time since at least 1972. Only one was up: Barclays US Agg +0.01%.
Going thru charts, these 5 stood out:
1. Tuesday was a 17:1 up day (advancing volume/declining volume), the best day since 3/24/2020. Combined with Friday's 11:1, it's the 2nd 10:1 up day in 3 sessions.
@ndr_research
1/5
A fun part of working at
@NDR_Research
is I can test commonly held beliefs. 4 myths circulating finance today:
Myth
#1
⬆️ rates are bad for FANMAG stocks.
Reality: Pre-COVID, FANMAG was cyclical. It was defensive during shutdowns, but FANMAG is becoming cyclical again. 1/
Recession fears have been front & center for over 2 years. It's understandable because a) traditional recession indicators like the yield curve and LEIs have been warning of recession, and b)the worst bear markets are associated with recessions.
@NDR_Research
1/6
3-day rally produced the 1st breadth thrust bullish signal: >90% stocks above their 10-day moving averages.
It's a start, but we need confirmation from others.
@NDR_Research
1/4
@hmeisler
If their argument is that the 💩 outperforming means that the rally isn’t sustainable I hate to break it to them but that’s what happens at the start of bull markets. (I’m not saying this is a bull, just that their argument doesn’t hold up to history.)
Going thru charts, these 5 stood out:
1. 50-day MA breadth just missed. Hit 89.66% on 8/16. Breadth thrust is 90.0%. The difference is probably insignificant, but the indicator is built at 90. Close counts for horseshoes and hand grenades, not breadth thrusts.
@NDR_Research
1/5
Earnings season is mostly done (84% of $SPX reported). A 🧵:
The beat rate is up to 78.5%, reversing a 2yr decline. Investors learned a long time ago that mgmt keeps expectations low, but this implies companies are getting a better handle on macro conditions.
@NDR_Research
1/5
This week's earnings remind me of a great chart from
@_rob_anderson
.
@NDR_Research
Tech Titans account for 29% of $SPX market cap & 18% of earnings. 11% gap is near a record. Tech has to report great EPS to justify the rally they've already had let alone outperform going forward.
3. The
@NDR_Research
Monetary & Fiscal Policy Index is near a record low! The macro rationale for the post-midterm rally has not kicked in. Pres cycle needs a Powell pivot (fiscal too!).
Put differently, since 1930 U.S. has not *entered* a recession in a pre-election year. 3/5
Today's CPI report is a reminder that stocks can rally w/high inflation...if it's high & falling. It may fall quickly over the next few months on y/y comps & supply chains. Getting to 2% may be tough, but for now the biggest issue of 2022 may not be one in 1H 2023.
@NDR_Research
Going thru charts, these 5 stood out:
This week, let's look at valuations.
1. PEs have fallen to multi-year lows, but are far from cheap. The $SPX forward PE is just above its LT avg, and the trailing operating and GAAP PEs are just below.
@NDR_Research
1/5
Most common question lately: does the strong rally mean there won't be a retest? Short answer: no it doesn't eliminate odds of a retest, but it increases the chances it will be milder.
We looked at waterfall declines. Chart shows avg. Details in next 4 tweets.
@NDR_Research
1/5
For those of you playing along at home, the rally has met the
@NDR_Research
criteria for a cyclical bull market. Our criteria is a combination of time and price. The SPX 20% rule works in many cases, but not all. Who talks about the 1/20/08 - 1/6/09 bull market? 1/3
I'm not big on anecdotal stories to describe a $26tr economy, but based on the amount of money being dropped in Tampa this weekend at Taylor Swift concerts, consumers are not acting like the US is in recession.
The Nasdaq has lots of "fallen angels" so the A/D line has a downward bias. Even in the 674% rally from 3/09 - 2/20 the A/D was rangebound.
It's broken out to its highest level since 3/08. The 706 new highs is a record back to 1979. Incredible technical picture.
@NDR_Research
Going thru charts, these 5 stood out:
1. Q2 was bad. Is that good? After $SPX ⬇️15% in a qtr, it has rebounded sharply. Post WWII⬆️7/8 times next quarter. 2 qtrs later⬆️8/8 by median of 15%. If economy isn't in a deep recession, history suggests stocks rebound.
@NDR_Research
1/5
Looking thru charts, these 5 stood out:
1. Short-term pessimism widespread.
@NDR_Research
Trading Sentiment Composite fell below 20 on last Monday's close. $SPX has been ⬆️ 1 month later 27 of last 30 times it fell to 20. 1/5
Cyclical bulls & bears last several months to a few years. Secular bulls & bears last several years to decades and include multiple cyclical cycles.
The 2022 cyclical bear was far closer to the average cyclical bear in a secular bull than a cyclical bear in a secular bear. 3/3
The
@NDR_Research
Crowd Sentiment Poll is showing the most pessimism in 2.75 years but is still well above levels seen at 2010, 2011 and 2016 lows. Pessimist extremes are different every cycle, but this suggests there's more work to do.
Going thru charts, these 5 stood out:
1. Commodities top of mind, of course. Oil spikes have coincided with weaker economic growth and have proceeded most U.S. recessions.
@NDR_Research
1/5
2. We got 2x 10:1 up day signals in July and Nov 2022. We’ve adjusted our mantra from “trust the thrust” to “trust but verify.” One breadth thrust indicator that didn’t fire in 2022 but gave one on 1/12/23 was the NYSE 10-day advances/declines.
@WalterDeemer
2/5
Why was $SPX's initial reaction to the CPI so bullish?
CPI had been trending down since Aug 2022 and is the biggest driver of the cyclical bull. Disinflation stalled but not enough to generate a sell signal from our CPI indicator. Keeps rate cuts on the table.
@NDR_Research
1/3
Wait! The 10 year yield fell today and Value still outperformed Growth. How is that possible?!
Reality is Tech (biggest Growth sector) benefits more than avg from a steepening yield curve. It's been in the top 6 for most of the last decade.
@NDR_Research
1/3
Going thru charts, these 5 stood out:
1. Last week's rally triggered a couple of breadth thrusts. Here's one based on the 5-day advance/declines ratio, courtesy of the great Jim Stack.
@NDR_Research
1/5
Just missed a breadth thrust signal for a second day in a row. Percent of stocks > 10-day MA slipped from 89.8% to 88.0%. Threshold is 90%.
@NDR_Research
Lots of talk about 2023 a lot like 1987:
-big ⬆️ yr +Q3 drop
-poor breadth
- inflation & rates ⬆️/hawkish Fed
-USD 💪
A closer look reveals several differences:
1. $SPX MUCH stronger in 1987. +39% at highs vs +21% in 2023. 1987 was yr 3 of bull vs yr 1 in 2023
@NDR_Research
1/9
5. Watch futures positioning. Combo of asset managers and leveraged funds (mostly hedge funds) has one of the biggest net short positions in the last 15 years. A reversal could be fuel for breadth thrusts. 5/5
Now that we've shown how hard it is to predict a recession, here's
@NDR_Research
best attempt. 10 indicators that have a good track record. Currently, 2/10 are warning. Economy may be slowing...maybe toward recession. But risks of one starting in next 2-3 months seems low. 6/6
As Powell testifies today, here's a challenge for the Fed. The y/y change in the
@NDR_RESEARCH
Real Monetary, Fiscal, & Exchange Rate Policy Index has climbed to its highest level since April 2021. A weaker USD helps but the main stimulus driver is fiscal policy. A 🧵 1/8
Going thru charts, these 5 stood out:
1. Friday was an 11:1 down day (declining volume 11x advancing volume). 1st 10:1 down day since 11/30/2021. Doesn't necessarily negate the March breadth thrusts, but burden of proof is back on the bulls.
@NDR_Research
Several breadth thrust signals recently, including two 10:1 up days. The record 6 months out is impressive (up 86% of time by avg. of 12%), but retests are common in the interim. Also some signals in 2008, 2010 and 2011 were early. Good first step but more needed.
@NDR_Research
5. Here are the last 4 bears in pre-election years. 1978-79 was a brutal, long bear. 1987, 2011 & 2015 were shorter and of varying magnitudes.
Bottom line: the consensus that the U.S. enters a recession in 2023 would be a macro headwind the pres cycle has not faced >90 yrs. 5/5
199 trading days since last 5% correction in SPX, longest since 2017-18 and 15th-longest since 1928.
Temptation is to say we're "overdue" and seasonals support the case, but perhaps a bigger takeaway is
11 of previous 14 were in secular bulls.
#trendisyourfriend
@NDR_Research
The rotation from Value to Growth was violent. It has brought the Russell 1000 Growth/Value ratio to what has been resistance/support over the past few years. If Value is going to make a stand, this is a good of a place as any to do it.
@NDR_Research
1/3
Q1 earnings season is almost done. What stood out to me was the refocus on returning capital to shareholders. For the first time since 2018, all 3 levers of shareholder payments could move in the right direction, adding a bullish underpinning to the market.
@NDR_Research
1/9
2. The presidential cycle is more than the market randomly flipping heads more often after midterms. The combo of monetary & fiscal policy typically bottoms before midterms and accelerates thru the pre-election year. 2/5
Weekly chart review. These 5 stood out.
1. Unemployment rate down to 4.2%. Historically, SPX has struggled when <4.3%. Pushes wage pressures up and forces Fed to move more quickly.
@NDR_Research
1/5
For
#oil
, supply disruptions have triggered price spikes, but prices have peaked ~2 months later, on average. Each cycle is unique, but demand destruction sets in a some point. Chart from
@NDR_Research
Sector Strategist Rob Anderson.
Look, I make a living on historical studies, but IMO a cap gains tax discussion requires nuance. Too few cases and too complex tax code. "Didn't hurt last time" won't cut it.
1st, size matters. 43.4% would be a record high, and biggest jump ever.
@NDR_Research
1/2
There's a myth that companies are borrowing like crazy. In reality SPX firms retired a net $222b in last 4Q (green bars).
Buybacks are rebounding (black bars) and companies able to fund more.
Add dividends, and total shareholder payouts at record and can rise more
@NDR_Research
Thurs was a 16:1 up day (advancing volume 16x declining volume). It was the 5th >10:1 up day since March, but the 1st that time there were 2 10:1 up days without a 10:1 down day in between.
@NDR_Research
1/4
Going thru charts, these 5 stood out:
The main point is when yields are low, speed matters!
1. 10yr is highest since May 2019. More important the pace has quickened. Regression indicator implies stocks have been able to withstand the rise but maybe not for long.
@NDR_Research
1/5
I get asked why I follow LT breadth since it confirms well after the lows.
The reason is that if it doesn't confirm, it indicates another down leg. Big Mo Tape,
@NDR_Research
sub-industry breadth gauge, failed to confirm in '02, '08, and '15. We're near a critical juncture.
One short-term breadth thrust indicator that did not signal by early April fired w/Friday's data: 10-day advances/10-day declines.
Breadth thrusts like these often come from oversold levels. To get a 10-day stretch like this after a such a big rally is remarkable.
@NDR_Research
There have been two 10:1 down days in June. Neither has been followed by a 10:1 up day. They don't negate the breadth thrust signals of late March - May, but they're not the most bullish development, either.
@NDR_Research
1/2
Market coming off an all-time heater. $SPX surged 25% in 5M for 7th time since WWII. Previous dates should sound familiar for end of major bears (2/75, 11/82, 7/09, 8/20). 3/86 is an exception. Fed cut 11 times from 11/84-8/86. Note '86 case had worst 6m returns
@NDR_Research
1/2
Myth
#4
: A strong dollar is bad for earnings.
Reality: This is true, but with a big caveat. The market tends to look past currency effects via the multiple. When the dollar is ⬆️ y/y, EPS growth is ⬇️, but the P/E is higher, and vice verse. Little difference in SPX returns. /end
The chart below is the ultimate Rorschach test.
Bulls: it's a function of a strong bull. In years <40% stocks beat the index, the SPX rose 5/6 times by a median of 22%.
The median 1H gain for the S&P 500 is 5%. In 2024, 47% of stocks rose >5%.
@NDR_Research
1/2
MBAs: CFA is a stupid waste of time
CFAs: Really!? You spent >100k and gave up 2 yrs of income
CMTs: The A/D line is diverging, markets peak when EPS growth peaks, seasonals are weak, and y/y gov't stimulus is fading. Keep your stops tight.
MBAs and CFAs: CMTs are for simpletons
Going thru charts, these 5 stood out:
1. Wed was an 11:1 down day (declining volume/advancing volume). That negates the 10/17 17:1 up day, so the clock starts over for a double 10:1 up day.
@NDR_Research
1/5
Looking through charts, these 5 stood out:
1. Good new first. Last week was best week for SPX since Feb. Good enough to trigger a bullish signal from our momentum reversal indicator.
@NDR_Research
1/5
Another breadth thrust signal from our 10-day adv/dec indicator.
Most signals come after major declines. This one was after a 4-day, 3.7% drop in $SPX. Is this what WSB meant by taking down Wall Street?
@NDR_Research
Going thru charts, these 5 stood out:
1. The Q2 beat rate is 73%, which is on pace to be near the lowest since Q4 2015, ex the pandemic shutdown. Earnings season is ~20% complete, so it's early.
@NDR_Research
1/5
Looking thru charts, these 5 stood out.
1. $SPX's worst start to the year since 2016, but
@NDR_Research
Trading Sentiment Composite stuck in neutral. Doesn't look like bulls are washed out. 1/5
Rise in
#inflation
may be transitory, but even during the disinflation of the last 40 years, when the y/y CPI has been >1% pt above the 5-yr avg, stocks have struggled.
@NDR_Research
Yesterday was a 17:1 down day (declining volume/ advancing volume) based in the NDR Multi-Cap universe, the worst day since 6/24/2020.
This cancels Friday's 14:1 up day for those looking for a double 10:1 up day breadth thrust signal.
@NDR_Research
The $SPX has once again struggled to climb above 4200. Lots of reasons for the most recent failure: debt ceiling, slowing disinflation, Fed uncertainty, banking crisis, looming recession fears.
@NDR_RESEARCH
1/6
.
@NDR_Research
Crowd Sentiment Poll near 11-month low, but still in "neutral" zone.
Anything can happen from here, but a couple more weeks of seasonal defensive market action could push it into extreme pessimism, setting up for year-end rally.
.
@NDR_Research
2021 cycle composite suggests a choppy uptrend into Q3, fall pullback, and weak yearend rally.
The cycle composite is an avg of 1, 4, and 10 yr cycles. Think of it as history's view of what 2021 could look like. 1/3
Going thru charts, these 5 stood out:
1. With all the focus on the Fed, don't forget fiscal policy has been very tight for over a year. The
@NDR_Research
Monetary & Fiscal Policy Index peaked in March 2021. On y/y basis, it's been getting less bad even as the Fed tightened. 1/5
5. The SHUT Index (Staples, Health Care, Utilities, and Telecom) measures defensive leadership. It's rebounded and is testing its Mar 2022 high relative to the SPX. Defensive leadership + rising rates + economic slowing is not a recipe for a major up leg.
@robanderson_stl
5/5
4. Recessions *ended in Q2 of pre-election years in 1975 and 1991. Stocks bottom 4-5 months before the end of recessions, so bears ended in Q4 of midterm year. Non-recession bears ended in Q4 1966 & Q4 2002. This is probably the bulls best hope. 4/5