Yesterday was a sea of red, although, in a strange way, there was a calmness to the session that was more like a strong river stream than a tidal wave of impending doom. For the S&P 500, there were specks of green, but deeper in the market, buyers actually showed up.

S&P 500 Big Test

Widespread weakness continues as now less than 36% of the components in the S&P 500 are trading above their respective 50-day moving average. Thus, it has gone from a sign of vulnerability to a sign the index is nearing oversold territory.

Technical Test

The S&P 500 has held above its 50-day moving average like a charm, going back more than a year, and it’s facing that test once again. Unfortunately, this test also coincides with the strong trendline that’s also been in place.

Market Breadth

For the major exchanges, market breadth continued to deteriorate with decliners more than 5:1 over advancers in the New York Stock Exchange.

The tide has officially turned for 52-week milestones, as there were more lows than highs in both exchanges; volume was light but significantly bearish on the NYSE, where down volume was almost 6:1 above up volume.

Market Breadth	NYSE	NASDAQ
Advancing	516	1,246
Declining	2,879	3,160
52 Week High	20	40
52 Week Low	96	257
Up Volume	620.38M	1.72B
Down Volume	4.57B	2.72B

Back to the Future

The CNN Business Fear & Greed Index has declined to its most fearful level since last April when the experts were heading for the hills, telling investors it was “every man and woman for themselves.”

Housing Boom

I’ve been worried about the housing boom for a few months, initially because of higher input costs, and now wondering about demand. The National Association of Home Builders (NAHB) housing market index keeps slipping after peaking last November.

The read of 80 is still a strong number as anything above 50 is an expansion. But the price is becoming a bigger headwind than supply. The red flag from the NAHB report came from prospective buyer traffic, which sharply dropped to 65, down 6% points.

Meanwhile, builders are still concerned about input cost as pointed out by NAHB Chairman Chuck Fowke, who noted: "Builders continue to grapple with elevated building material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500% above its January 2020 level.”

That Was Fast!

Unbeknownst to everyone back then, when fear was gripping the market, all the market experts were scurrying to the hills, and scientists said it would be years before there would be an effective vaccine against Covid-19, the recession was ending.

That’s right. According to the National Bureau of Economic Research (NBER), the 2020 recession, like the bear market, was the shortest on record. 

Honestly, I think the NBER calls recessions too soon, but the point is the market was calling for a recovery and a vaccine when experts were casting doubt over everything. By the way, because the economy is elastic, the deeper the recession, more often, the larger and longer the following expansion is.

Freedom

Yesterday was coined “Freedom Day” in the United Kingdom, even as the Delta variant runs rampant, and Amazon will stop testing workers. There is no doubt everyone should be cautious to a fault, but we have to live and cannot let precautions, and would-be cures make matters worse. So, I pray this strain of Covid-19 fails to spark hospitalizations and deaths. Once the market determines this to be the case, we could see a rebound. I think it happens quickly.

Portfolio Approach

Yesterday we raised cash in our Hotline Model Portfolio, and we made some changes to our current buy list. 

Today’s Session

Equity futures have been edging lower after a typical bounce following a tough outing.  Maybe some of the drift is because investors were rubbernecking the Blue Origin countdown taking Jeff Bezos and others into space.

Bonds Come Back to Earth

While billionaires take off to space, yields and the curve are coming down so fast, hitting terminal velocity.  I think the message is clear – slower economic growth next year.  And that should keep the Fed at bay.

The yield curve is flattening at a more rapid pace.

There have been positive reactions to key earnings releases from IBM (IBM) and Travelers (TRV), but overall, there is a fair amount of trepidation in the air.

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