From the Desk of Kimmy Sokoloff

So, we had a decent consolidation day.

We just have to make sure this market hangs on.

This is the video recording of the October 6th, 2022, Weekly Town Hall w/ Willie Delwiche.

10/06/22 2:00 PM ET

From the desk of Willie Delwiche.

This All Star Charts +Plus Monthly Playbook breaks down the investment universe into a series of largely binary decisions and tactical calls. Paired with our Weight of the Evidence Dashboard and our Playbook Chartbook, this piece is designed to help active asset allocators follow trends, pursue opportunities, and manage risk.

The S&P 500 just narrowly avoided finishing Q3 with the first back-to-back-to-back 3%+ weekly declines since 2009. It followed that up with the first back-to-back 2.5%+ gains since December 2008 to start Q4. Volatility isn’t showing up in the VIX but it is apparent in the daily and weekly price action.

Why It Matters: There is an inverse relationship between market volatility (as measured by big daily swings, in either direction) and market strength (as measured by new highs > new lows). In the past quarter...

From the desk of Steve Strazza @Sstrazza and Alfonso Depablos @AlfCharts

We held our October Monthly Strategy Session Monday night. Premium Members can access and rewatch it here.

Non-members can get a quick recap of the call simply by reading this post each month.

By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends. This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big-picture” point of view.

With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.

From the Desk of Louis Sykes @haumicharts

One of our favorite anecdotal indicators is the classic magazine cover.

Journalists do a tremendous job of aggregating consumer and investor sentiment.

By the time these magazines and other features take time to plan, develop, and eventually publish their covers, they're always going to be late to the party.

That time delay often presents a prime opportunity for investors.

Similarly, ETF providers also give us a wealth of sentiment information, particularly when it comes to ETF launches and de-listings.

ETF providers have a hilarious track record of launching funds at the complete worst time while de-listing them right before things get going.

A classic example is the coal ETF that got de-listed right before the epic bull market in coal stocks just began.

In crypto, we have yet another insightful indicator, one I like to call the "FTX indicator."

People get so angry when I tell them that Energy stocks haven't even broken out yet...

The historic outperformance in Energy over the past 2 years is just the pregame.

The real party hasn't even gotten started.

The DJ is still setting up....

We haven't even mixed the jungle juice.

Take a look at the Energy Sector Index still stuck below those 2008 highs. And its largest component Exxon Mobil (23.7% weighting) below those same levels:

The next new position in our Paid-to-Play portfolio is:

From the Desk of Kimmy Sokoloff

Yesterday, the market had a nice comeback from the morning lows. This morning, the futures are pulling in some, and, to me, this is still healthy.

Hopefully, we can trend higher or sideways throughout the day.

Now that there’s some clarity around the Twitter $TWTR/Elon Musk deal, the focus is shifting to how exactly it will get done.

Today’s reports claim that Apollo, Sixth Street, and others have ended conversations with Musk’s team to provide debt financing.

As it turns out, $44 billion is a lot of money, even for the richest man in the world…

From the Desk of Steve Strazza @Sstrazza

When investing in the stock market, we always want to approach it as "a market of stocks."

Regardless of the environment, there are always stocks showing leadership and trending higher.

We may have to look harder to identify them depending on current market conditions. But there are always stocks that are going up.

The same can be said for weak stocks. Regardless of the environment, there are always stocks that are going down, too. 

We already have multiple scans focusing on stocks making all-time highs, such as The Hall of Famers, The  Minor Leaguers, and The 2 to 100 Club.

We filter these universes for stocks that are exhibiting the best momentum and relative strength characteristics. 

Clearly, we spend a lot of time identifying and writing about leading stocks every week, via multiple reports.

Now, we're also highlighting lagging stocks on a recurring basis.

Welcome to The Short Report.

From the desk of Willie Delwiche.

We sold commodities and bought bonds while tweaking where we get our equity exposure.

The Details: While none of the major asset classes are in up-trends, bonds now hold a relative advantage over stocks and commodities. We adjusted the exposure in the Strategic, Cyclical and Tactical portfolios to reflect these shifts and also to reflect leadership shifts we have seen within equities.

From the Desk of Kimmy Sokoloff

That was a nice reversal for the indices today.

They held support where they needed to and then trended higher.

From the desk of Willie Delwiche.

Calling Baloney On Investor Bearishness

Investor surveys indicate widespread pessimism but asset allocation data (and ETF flows) paint a different picture. 

The Numbers: September saw the 5th and 6th times in history that the AAII weekly sentiment survey showed bears above 60%. When bears have growled in the past, exposure to stocks was in the 40s and exposure to cash was only slightly lower. Now, equity exposure is still in the 60s (and above the long-term average) and cash exposure is in the 20s.

Why It Matters: Sentiment extremes can be valuable contrarian indicators, but this can’t work as well if sentiment is divorced from positioning. If cash has not been accumulated as investors turn bearish, there is little to put to work when the crowd’s mood turns more hopeful.

In this week’s Sentiment Report we see plenty of evidence that investors are feeling pessimistic. We could be more constructive if those feelings had already been accompanied by...

This is the video recording of our October 5, 2022, Inside Scoop Weekly Strategy Session.

Even though stocks have broadly advanced on the first two trading days of October and Q4, today's market action reminds players that stocks are still risky here and the options market continues to price in this fear in the form of higher than normal options premiums.

As such, the odds favor net premium sellers in these conditions -- so that's what we're on the hunt for.

Ideal setups are ones in which a nearby support level has revealed itself so we can lean against it for risk management purposes.

One such setup can be found in Brookfield Asset Management, $BAM:

There's been no denying the importance of the US dollar when it comes to evaluating risk appetite.

It's been clear -- the dollar has been the safe haven.

Not gold.

Not the yen.

Certainly not bonds.

When the dollar has been strong, crypto and equities have been pressured, and vice versa when the dollar's eased off.

Just look at the last few sessions of trading: The dollar sold off, and equities quickly got back above their June lows, putting in a failed breakdown.

In fact, it's not just the broad indices putting in these failed moves. There are ton of whipsaws out there this week.

One, in particular, that's caught our interest is gold.

After running the stops below this support level, gold finds itself back in the high time frame range.

We can't say it enough: We love these setups. They're among the highest-conviction, highest-probability, and greatest momentum setups to trade -- all factors traders dream of.

In essence, when price undercuts its former lows, stop-losses get hit and...

We've adjusted a position in the Paid-to-Play portfolio today:

Stocks have been under pressure consistently since Q1 last year. That was 20 months ago.

That's precisely when the United States Dollar stopped falling and started to rise.

And this wasn't just against the Euro, which represents 58% of the Dollar Index, we saw Dollar strength across currencies from all over the world.

The US Dollar was the only safe haven asset this year. It wasn't US Treasury Bonds, it wasn't Japanese Yen and it certainly was not Gold.

The only safe haven was the US Dollar.