Monday, December 5, 2022

Morning Note: Equity Market Conditions Remain Negative

According to the latest scoring of our own Equity Market Conditions Index (EMCI), the go-forward equity market setup, while still net-negative, has improved a bit over the past month.

Here's the summary from our internal report:

11/30/2022 PWA EQUITY MARKET CONDITIONS INDEX: -16.7 (+8.3 from 10/31/2022)

SP500 past 30 days +5.38%:

Interest rates backing down a bit, strong equity market breadth, softer Fed-speak and, at the margin, improving geopolitics (US/China, China/Covid, China less-supportive of Russia) were factors leading to this month’s improved score.

However, deterioration in sector leadership, investor sentiment, and our technical analysis of the dollar (probabilities point to a bounce) – along with those inputs that remained negative in November – keep present equity market conditions net-negative.

It is worth noting that while our financial stress index (credit market conditions) still scores bearish, it has come notably off the boil, which, in a sense, cuts both ways… I.e., it’s positive, as it denotes less-precarious financial conditions, but, then again, in a myopic-market sense, it’s negative, in that it potentially puts less pressure on the Fed to lean softer.

Inputs that showed improvement:

Interest Rates (from negative to neutral)

Breadth (from neutral to positive)

Fed Policy (from negative to neutral)

Geopolitics (from negative to neutral)

Inputs that deteriorated:

US Dollar (from neutral to negative)

Sector Leadership (from neutral to negative)

Sentiment (from positive to neutral)

Inputs that remained bullish:

SPX Technicals

Inputs that remained bearish:


Economic Conditions  

Credit Market Conditions

Areas that remained neutral:

Fiscal Policy

EMCI since inception:

SP500 since EMCI inception:

For more on our view of the general setup heading into next year, here's the link to yesterday's post featuring our latest market log entry.

Asian equities leaned green, with 9 of the 16 markets we track closing higher.

Europe's mostly red so far this morning, with 12 of the 19 bourses we follow trading down as I type.

US stocks are slipping to start the week: Dow down 260 points (0.75%), SP500 down 0.79%, SP500 Equal Weight down 1.14%, Nasdaq 100 down 0.53%, Nasdaq Comp down 0.68%, Russell 2000 down 1.57%.

The VIX sits at 20.24, up 6.19%.

Oil futures are up 1.66%, gold's down 0.69%, silver's down 2.45%, copper futures are down 0.04% and the ag complex (DBA) is down 0.10%.

The 10-year treasury is down (yield up) and the dollar is up 0.11%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), only  -- Sweden equities, energy stocks, base metals miners and communication stocks -- are in the green so far this morning. The losers are being led lower by Dutch Bros, AMD, cyber security stocks, tech stocks and Mexico equities.

" can either use information to further develop your biases; or you can use it to train your mind."
--Andrei, Vizi. Economy of Truth 

Have a great day!

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