Bear Trap?
Against the backdrop of very negative investor sentiment, hedge fund positioning, and the ongoing Russia/Ukraine war, on Friday March 11th, we covered some early “optimism indicators” with the S&P 500 at 4185. One of these indicators we discussed was the need for a follow through “breadth thrust” where the number of gaining stocks far exceeds declining ones. Well, the number of “Breadth Thrusts” continued adding up last week and many long-time bears have been gored once again to the tune of over +8% rally in the S&P 500 in the last 10 trading days.
For those of you that have been glued to your TV’s feeding off the negativity being presented by the news media, please recognize that the market bottomed the exact day that Russia invaded Ukraine. Our investment team covered the “normalcy” of this dynamic around wars and stock markets a few weeks ago. Since then, we have rallied 10% and 430 points off that low. This is not much different than when the market bottomed at in March 2020 while the worst of the Covid deaths were being reported, along with record unemployment numbers, nationwide economic lockdowns being ordered, and the economy being in recession. During the next 2 quarters, the S&P 500 rallied 1000+ points off the March 2020 low. Please recognize that following the news events on TV (progressive or conservative) is most often entirely useless when it comes to your investment portfolio.
Global equities were mostly higher last week led by the Japan/NIKKEI (+4.9%) and USA/NASDAQ (+2%). Health care was the top performing sector, followed by energy. On the back of higher long-term interest rates and a flattening yield curve, consumer discretionary and financials were the worst performing sectors.
A big section of Shanghai will be locked down for about a week impacting 5.7 million people; then, the rest of the city will be closed another five days or so (Friday until Tuesday). This means that not only will businesses be shut down, but so will factories. This means that global supply chains will continue to be disrupted. The media will continue to hammer home this dynamic.
Much was made on TV of the March 14th “death cross” in the S&P500 when the price of its 50-day MVA (Moving Average) crossed below its 200-day MVA. The S&P 500 is now up +8.5% in the 10 trading days since that much hyped indicator was pumped on financial TV.
For only the 4th time ever, the S&P 500 gained at least 1% for 4 consecutive days. According to analyst Ryan Detrick, a year later it has been up more that 20% every single time with an average gain of 28%. On Friday March 18th, over 90% of stocks in the S&P 500 rose above their 10-day moving averages. According to Ned Davis, since 1982 the S&P 500 has been higher a year later 35 out of 36 times. The reading setups look remarkably like both early April 2020 and late October 2020, both proceeding strong 9–12-month rallies.
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