Daily Chartbook #1

Yesterday's wrap (July 19)

July 20, 2022

The markets had a big day. By Webull’s count, there are 8,039 total stocks. Of those, 5,298 finished in the green compared to 1,340 losers.

I’m happy to report none of my holdings belong to the latter group.

1. 2023 Earnings. Next year’s earnings projections continue trending downward.

2. Huge disconnect. There’s a big divergence between stocks’ expected earnings and their corresponding multiples.

3. Where the money managers at? Fund managers’ exposure to stocks is at its lowest levels since October 2008 (Great Financial Crisis).

4. C.R.E.A.M. The same fund managers’ cash levels are at their highest since 2001.

5. Extremely rare scenario. Over the last 10 weeks small traders have spent $39.7B on puts (bearish options) vs. $39.6B on calls (bullish options). There have only been 2 other times in recent history where puts spend has similarly outweighed calls spend. Both times, the markets moved one last leg lower, but both times the bulk of the bear market’s damage had already been done.

6. Inflation breadth stinks. It used to be just one or two things that were seemingly driving inflation. It’s now as widespread as it’s ever been.

7. Fed snip-snap. The markets are pricing in rate hikes quickly followed by rate cuts.

8. The market bottoms before inflation is “under control”. Below is not when Volcker shifted policy, but rather when he acknowledged a shift in attitude. As Sam Ro stresses, when that day comes—which in my mind is when the Fed gets its “clear and convincing evidence”—you want to be long.

9. More to that last point. Jeremy Siegel (Wharton finance professor) recently went as far as saying the Fed could be on the verge of a shift in policy. A little optimistic for my taste, but I like the enthusiasm:

…The market will bottom and rally — maybe [at the] end of July. [The Fed raises rates 75 basis points] and says, “Listen, we think we made a lot of forward progress. The [inflation data] prints will still show high inflation. But we feel we've done most of the tightening.” Wow, I want to be long on that day. It may not be July, but I want to be long that day.

10. European Natty. Natural gas prices are rising in Europe as uncertainty looms over whether or not Nord Stream pipeline will be reopened on schedule.

11. Reclaiming the 50-day moving average. The Nasdaq, S&P 500, Dow, Bitcoin, and Ethereum all recaptured the key level today for the first time since April.

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