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Are These Two Areas of The Stock Market Suggesting Continued Challenges?

CAMS Weekly View from the Corner – Week ending 4/1/2022

April 4, 2022

We continue with our insatiable market curiosity as to whether we started 2022 out as what will prove to be a true bear market. We use true bear market to succinctly describe a market that will be challenged not only in its overall performance but also in terms of time. Rather than the customary (in recent years) out-of-nowhere sharp stock market downturn that quickly rectifies itself only to then continue trending higher; we experience a long run of a stock market that tries to rectify itself and then fails – doing so again and again – and hence carving out many months, if not a couple of years or so in time. In our previous edition we examined how this looks using the 2000-2003 true bear market. In that timeframe we consistently seen quick upturns that felt like the worst was behind us only to see X weeks or months later that more price damaged came onto the scene. At this stage we continue to watch a wealth of characteristics, behaviors and inter-market relationships that only increase our curiosity of the above. We thought we would share two behaviors within the stock market that, at this stage are not presenting the backdrop that all is good again and a brand new rip-roaring bull market has begun from the Jan-Feb ashes. Importantly, we do not share these as though they are the be-all and end-all of stock market indicators but rather that their notable underperformance and lack of being able to put their trends back together raises questions for the true overall health of the stock market’s recent rebound. We have offered in previous editions and will do so here again that our curiosity on this topic is not meant as an inherent statement that we feel a long running bear market is a certainty. Rather, through the lens of history, coupled with aforementioned characteristics and behaviors, we are open-minded that such an experience may have begun. It is the open mindedness that we are focused on and suggest others do the same. Operating in markets with a self-assured conviction that X market environment is all but a guarantee can lead to disastrous outcomes.

Click For Larger View: https://schrts.co/MFxPNgJa

The above chart depicts the price behavior for the Banking industry’s stock performance. The black line reflects the clear downtrend this industry is in. The most recent upturn was unable to even go up and touch the established downtrend line let alone pierce through it to the point that it would suggest the down trend had potentially ended. When trend lines cannot even be touched with rebounding price performance we know the rebound was particularly weak. In addition, the smooth red line depicts the moving average price of the previous 200 days. This industry is now showing a persistence to want to be below this important price average offering further evidence as to how weak this industry currently is. On this note generally speaking; if an investment cannot command a price that is higher than the average of the previous 200 trading sessions then we can conclude said investment certainly is not thriving on a trend basis.

Click For Larger View: https://schrts.co/mSehMgyX

The above chart here depicts the price behavior for Broker/Dealers within the stock market. It only makes sense that if collective market participants are truly seeing a brand new bull market beginning they would bid up these shares being they benefit directly from increased trading and investment that comes with a strong up trending stock market. Similar to our Banking chart above this chart also reflects an established down trend line. In addition, Broker/Dealers price performance has been stubbornly below their average price of the last 200 days via the smooth red line. All told when collective market participants expect to see a strong new bull market coming with a corresponding strong and functioning economic backdrop Broker/Dealers and Banks are typically beneficiaries. Currently, they are obviously struggling. Current day, via the two storylines above, market participants are calling into question the view that we are in fact entering a strong and solid stock market up trend whereby the economy is clicking on all cylinders. We continue to offer caution in light of the above as well as many other behaviors that are not adding up to market based convictions that all is well again in stock market land. I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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