Breadth Thrusts
Against the backdrop of very negative investor sentiment, and hedge fund positioning into an option expiration week Friday, the three major U.S. stock markets ripped higher. On the week, the Dow rallied 5.5%, S&P500 over 6%, and the NASDAQ rallied 8.2%. This was the markets best week since November 2020 which marked the pivot higher for the S&P500 for the next 12 months. This morning, Treasury yields are higher continuing the interest rate markets flattening which has been in place since February 2021. The dollar rallied last week on Russian/Ukraine risk as well as Federal Reserve hawkish interest rate releases.
Much was made on TV of the March 14th “death cross” in the S&P500 when the price of its 50-day MVA crossed below its 200-day MVA. This week’s podcast covers this topic. Spoiler alert: it’s been very benign as an indicator for 80 years, and this cycle? Since 2009, it’s been flat out horrible, with the S&P500 averaging over positive +25% the following 12 months during the 6 previous “death crosses” since the Great Financial Crisis ended in 2009. As aways, past performance is not indicative of the future.
We covered some early “optimism indicators” on Friday March 11th with the S&P500 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” are adding up after last week’s rally.
For only the 4th time ever, the S&P500 gained at least 1% for 4 consecutive days. According to Ryan Detrick, a year later it has been up more that 20% every single time with an average gain of 28%. On Friday 18th, over 90% of stocks in the S&P500 rose above their 10-day moving averages. According to Ned Davis, since 1982 the S&P500 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.
For now, we continue to expect months of additional volatility.
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