From the desk of Willie Delwiche.

While the Fed may be newly focused on inflation, the bond market does not appear to be similarly inclined. The yield on 30-year Treasury bonds this week has undercut its summer lows near 1.80% and the 10-year t-Note yield has dropped below the 1.40% level that has been important in the past. Moreover, the yield spread between 2’s and 10’s has dropped to its lowest level of the year. This drop in yields (reflecting strength in bonds) is not inconsistent with deteriorating equity market conditions seen beneath the surface (as well as increasingly at the index level). Coming about always carries risks, and the Fed is trying to change course in choppy waters.  

From the desk of Steven Strazza @Sstrazza

It's been about a month since small- and mid-caps resolved to the upside and made fresh highs.

As we all are aware, these were simply massive head-fakes. We're right back to where we started--stuck in the middle of the same range we've been in all year.

There was also plenty of evidence from our intermarket relationships and ratios to support these moves. Discretionary-versus-staples ratios broke to fresh highs. Copper versus gold. Stocks versus bonds. Inflation expectations. They all made new highs recently. But, just like most stocks on an absolute basis, many of these breakouts have since failed.

Of all these developments, it's hard to argue that any is more important than the stocks-versus-bonds ratio retracing back beneath its Q1 highs. With long rates making new lows and stocks selling off, let's talk about how we are approaching both of these asset classes right now.

Here's the S&P 500 $SPY relative to long-term Treasury bonds $TLT, zoomed out to the early 2000s.

...

While volatility remains elevated, I remain on the hunt for appropriate vehicles to sell premium in.

We sold premium in IWM earlier this week. Today, I'm going to drill in a little deeper into sector ETFs that are displaying the highest relative implied volatilities. This search leads me to the finance sector.

This is the video recording of our December 3, 2021, All Star Charts Crypto Weekly Strategy Session.

If the world was coming to an end, would Homebuilders be breaking out of 6-month bases to new all-time highs?

I would argue no.

The Homies are one of those groups we look to for leadership in strong markets, not in weak ones.

From the desk of Steven Strazza @Sstrazza and Grant Hawkridge @granthawkridge

Breakouts and breadth expansion kicked off the month of November. 

But the market had other ideas... 

Instead of fresh legs higher, investors were dealt a handful of downside reversals and failed moves. Last week, we went from discussing breakouts and new highs for stocks... to throwbacks and retests of old ranges. This all happened in the matter of a few trading sessions.

A lot has changed in a short period. In times like these, it’s important to take a good look under the hood to see what market internals are suggesting.

As we reviewed our breadth chartbook today, we asked ourselves the following questions: 

Are we seeing a notable expansion in new lows? Is it enough that we should be worried?

Let’s take a look beneath the surface and see if we can find some answers!

First, let’s check in on the 21-day and 63-day lows for the S&P 500:

...

They're baaaaack....

Did you see the spike in bearish individual investors?

We just got the most amount of bears in over a year:

From the desk of Steve Strazza @Sstrazza 

We held our December Monthly Strategy Session last night. Premium Members can click here to review the recording and the accompanying slides.

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 a valuable exercise, 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.

This is the video recording of the December 2nd Weekly Town Hall w/ Willie Delwiche

12/02/21 3:00 PM ET

From the desk of Willie Delwiche.

There’s no shortage of headlines this week -- a potpourri of potentially market-moving developments. 

And boy, have markets moved! Of course, these market gyrations are probably not quite for the reasons the headline writers have proposed. But we can leave that discussion for another day...

Today, I want to talk about when to change course and when to sit tight. 

Let’s consider the recent comments from Fed Chair Powell on inflation and apply a lesson I learned when sailing on the waters of Lake Michigan.

In an asset class with so much insightful data, it's vital to have a toolkit of data providers, platforms, and software to navigate it all.

We use a handful of tools when analyzing the crypto markets, and we thought we'd share the ones that have been valuable to our process.

We have a new Options trade up this week.

We're selling an $IWM December 31 (weekly) Iron Condor. We’ll be short the 210 puts and 235 calls, while protecting the position $5 away in both direction with long 205 puts and 240 calls. This entire spread can be put on for about a $1.70 credit.

Check out our short video with the thought process behind these trades:

This is the video recording of our December 1, 2021 Monthly Charts Live Strategy Session

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 Hall of Famers, 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...

From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley

Treasury yield spreads are contracting.

Inflation has been the talk of the town in recent weeks. But, now that the Federal Reserve has finally joined the chorus, the market seems to be headed in a different direction. At least over the near term.

Short rates are holding up just fine, but the longer end of the curve has been under serious pressure.

We’ve been closely monitoring long-duration rates for signs of further weakness. As we write, the 30-year is violating its summer lows, and the 10-year is testing a critical level of interest around 1.40%.

The bulls really need these levels to hold. If they don't, we’d better get used to the recent volatility--because it’s likely to get worse.

Let’s take a deeper look!

This is a weekly chart of the US 10-year yield:

We’ve been focused on the 1.40 level for several years now... and for good...

From the desk of Willie Delwiche.

Stocks finished a volatile month of November in downbeat fashion, with breadth deteriorating and downside momentum expanding. Global equities bore the brunt of the weakness, though there was plenty of it to go around. Just one month removed from a new high in the All Country World Index (ACWI), a quarter of the country-level indexes that make up that composite finished November at new 12-month lows and only 10% were above their 50-day averages. Domestically, sector-level price, breadth and momentum trends showed a degree of weakness that in the past has been associated with index-level drawdowns of 7% or more and yet the S&P 500 finished November less than 3% from it's all-time high.

From the desk of Willie Delwiche.

Key Takeaway: The bulls came out expecting strength but were served a healthy dose of volatility. What on paper is a historically favorable season has turned out to be quite the opposite. New highs quickly fell to the wayside and into the rearview mirror as participation crumbled beneath the surface. In the wake, investor optimism is now accompanied by a sobering caution. The need for repair beneath the surfaces is great for both domestic and international equities, and is necessary to re-build investor confidence. For now, there are no significant signs of pessimism emerging. But volatility and pessimism can be dangerous dancing partners, each leading the other to the edge of the dance floor.   

Sentiment Report Chart of the Week: Investors’ Love Of Equities Undiminished

Investors continue to pile into equities. YTD ETF flows through November show equity funds attracting nearly $600 billion of inflows, with two-thirds of this heading toward US equities. Bond fund...

From the desk of Steve Strazza @Sstrazza

Plenty of stocks continue to show relative strength through the recent volatility. We still want to be buying these leaders.

And plenty of stocks continue to underperform, having already violated their year-to-date ranges to the downside. Those are the names we want to be looking at to short.

But most stocks are simply in "no-man's land" right now.

Some were rejected at their year-to-date highs. Others broke out and quickly failed. It doesn't matter how they got there. What matters is they're now "back in the box" and facing the very same overhead supply levels they've faced for much of 2021.

It looked as if markets were making progress earlier this month. But it turns out most of these new highs were -- dare I say --transitory?

Let's take a look at financials, using the group as a case study for how we want to approach all the range-bound patterns we see out there.