Monday, October 3, 2022

Morning Note: Equity Market Conditions a Little Less Bad

In recent posts we've presented a case for a bear market rally, and even dared to hint at the notion (as opposed to the conviction) that a bottom may not be in the too distant (whether in terms of price or timing) offing. 

Now, I need to be clear, market skies are anything but, well, clear, right here... However, and make no mistake, they indeed won't be as stocks begin to form their ultimate bottom this go round. On the contrary, they'll likely be exceedingly dark, precisely then.

Bottom line, we simply can't know when and from what level the next bull market begins (and there's presumably plenty [earnings, Fed policy, elections, geopolitics, yada yada] left to play out), all we can do is the technical and fundamental work necessary to gauge probabilities... Suffice to say that uncertainty continues to rule right here.

One of our many tools is what we call the PWA Equity Market Conditions Index (EMCI), an indicator (developed 8/31/2021) that we score at the end of each month.

August's score plunged from 0 (essentially neutral) to -50 (notably bearish), and the S&P 500 followed with a plunge of its own, to the tune of -9.61% for September... 

As September came to a close, our score improved to -25... We'll see to what degree, if any, the market in October reflects these somewhat improved (although still negative) conditions.

Here's the intro to our internal report:

9/31/2022 PWA EQUITY MARKET CONDITIONS (EMCI) INDEX: -25 (up from -50 on 8/30/2022)

SP500 past 30 days -9.61%:

The EMCI’s advance to -25, from -50 denotes notable improvement over the past month, however, it still reflects on-balance negative equity market conditions.

Inputs that showed improvement:
Sector Leadership (from neutral to positive)
Economic Conditions (from negative to neutral)
SPX Technical Trend (from negative to neutral)

Inputs that deteriorated:

Inputs that remained bullish:
US Dollar (technically toppy)
Sentiment (bearish/high fear. I.e., contrarian indicator)

Inputs that remained bearish:
Interest Rates
Fed Policy
Credit Market Conditions

Areas that remained neutral:
Fiscal Policy

EMCI since inception:

SP500 since EMCI inception:

Like I said in Saturday's video, we're entering the historically-best quarter of the year with stocks in extreme oversold conditions... While facing, however, a Fed tasked with squeezing inflation out of the system... Now there's uncertainty for ya, by definition.

Asian equities were lower overnight, with 12 of the 16 markets we track closing in the red.

Europe, on the other hand, is mostly green so far this morning, with 15 of the 19 bourses we follow trading up as I type.

US stocks are rallying to start the session: Dow up 322 points (1.13%), SP500 up 0.95%, SP500 Equal Weight down 0.89%, Nasdaq 100 up 0.35%, Nasdaq Comp up 0.43%, Russell 2000 up 0.57%.

The VIX sits at 31.49, down 0.41%.

Oil futures are up 6.09%, gold's up 0.40%, silver's up 5.20%, copper futures are down 0.85% and the ag complex (DBA) is down 0.10%.

The 10-year treasury is up (yield down) and the dollar is up 0.18%

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 34 -- led by oil services stocks, Brazil equities, silver, AT&T and base metals miners -- are in the green so far this morning. The one loser (and just barely) so far this morning is base metals futures.

"The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight."

--Jesse Livermore 

Have a great day!


  1. Taking some time off last weekend was one of the best time in San Diego! We went to Sesame Place and Sea World. It was peaceful spending 1 night at Homewood Suite with our cell phones off.