Bear Cave 2 (Bull Allowed)

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This Ultimate Market Barometer Signals a Rally
Jeff Clark | Mar 14, 2022 | Market Minute | 2 min read
If you’re looking for signs of a stock market bottom, then pay attention to junk.

High-yield bonds (a.k.a. junk bonds) are the ultimate barometer of investors’ willingness to take on risk.

If the stock market is going to rally, then junk bonds will likely rally first. And, when the market is set to fall, weakness in high-yield bonds is often the “canary in the coal mine.”

We’ve written about this relationship between junk bonds and stocks many times here in Market Minute.

The action in high-yield bonds tends to lead the action in the broad stock market by anywhere from two days to two weeks.

That relationship should inspire some hope among the stock market bulls. It looks like high-yield bonds are setting up for a rally.

Take a look at this chart of the iShares iBoxx High Yield Corporate Bond Fund (HYG)…
https://www.jeffclarktrader.com/market-minute/this-ultimate-market-barometer-signals-a-rally/
 

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Mike Wilson continues to see poor risk / reward for the S&P 500 over the next several months

He thinks the Fed will err on the side of hawkishness, given inflation is now arguably out of control… which likely leads to equity valuations overshooting to the downside. He has been saying 18x NTM EPS is ‘fair value’ based on a 10yr UST yield of 2.1% and an ERP (Equity Risk Premium) of 350 bps. However, this ERP now appears too low based on everything going on in the world today, and could easily overshoot to the upside by ~100bps. This would translate to a P/E closer to ~15x, and -17% downside for the S&P 500 to 3500, assuming earnings don't take a hit. However, he also sees top-line misses and margin issues for several companies in 1H’22.
https://themarketear.com/
 

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HYG refusing
Despite SPY having done little over past weeks, the HYG continues crashing and has under performed massively since February 23. Second chart shows the longer term view.
https://themarketear.com/
 

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What the S&P's 10-and-10 correction suggests for the next few months
Jason Goepfert
Jason Goepfert
Published: 2022-03-15 at 07:35:00 CDT
A 10-and-10 decline with no exhaustive selling pressure

It's been less than 3 months, but it feels much longer. As investors heralded the end of 2021, stocks were sitting at all-time highs, and the outlook (according to most) was excellent.

Now 10 weeks removed from the last weekly closing high in the S&P 500, the most benchmarked index in the world is still sitting more than 10% below its high point. Buyers' apathy and inability to build on even minor rallies is a hallmark of bear markets, and that fear is building by the day.

Curiously, there have been no days with truly exhaustive selling pressure during this entire stretch. Despite the large (but not extreme) price swings, there have been zero days with more than 90% selling pressure. The NYSE Up Issues Ratio has remained above 10% the entire time, unlike the pandemic crash and its aftermath.

https://www.sentimentrader.com/blog...l&utm_term=0_1c93760246-8689f65809-1271291994
 

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Recession reflections
GS economists currently assign a roughly 20%-35% probability of a US recession in the coming year. Goldman: "Under such a scenario, we would invariably have to cut our EPS estimate even further. From a historical perspective, during a recession S&P 500 EPS typically falls by 13% from peak-to-trough before rebounding by 17% during the subsequent four quarters" (Goldman)
https://themarketear.com/
 
VXX daily: What did I miss? What is causing this spike up this morning. This doesn't seem right.
 

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The market is expecting a 25-basis-point increase tomorrow.

How about one of those violent bear market squeezes?

Macro trading has been very interesting over past months. This market has a lot to digest going forward; the first Fed rate hike, QE going QT, peak inflation and much more. As we have seen over the past few trading sessions we are prone to strong contra-trend reversals (commodities). Are we setting up for something similar in equities? Let's see how the stressed market will take FOMC tomorrow.

VIX - how is under the hood stress doing?

VIX remains elevated as we approach FOMC. We are down from recent "panic" highs...

https://themarketear.com/
 
KWEB daily: Trying to bottom.....



https://kraneshares.com/kweb-aims-to-fully-transition-to-hong-kong-shares-in-coming-months/#


Charlie Munger has recognized value since before World War II.


As the above article mentions, Charlie Munger--who only has about 98 years of life experience--is a big fan of Chinese internet companies. Like Seth Klarman and Benjamin Graham, he is focused on fundamentals rather than hype. Whenever the most-experienced investors are aggressively buying while the least-knowledgeable traders are bailing out from disappointment it is time to step up to the plate.

Kaplan

I bought some shares in early trading using a limit order. I was surprised it filled. Beer Money trade....

03/15/2022 07:50:19 Bought 100 KWEB @ 20.25
 

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KWEB daily:A huge gap up...... Will it fill in the near future or just keep moving higher?
 

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SPY daily: A new buy signal, but will it hold. Holding above the 3 ema, and the 20 ema. The 50 day sma be up. The SPY tracked 23 days (trending lower) below the 20 ema.... Not what we want to see!

ST- The trend is now up. We shall see how it plays out. Whipsaws have been the norm lately.
 

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Fed this and that, but KWEB steals the show
From extremely oversold to basically overbought in a day. Volumes are beyond huge. It doesn't get more extreme than this...at least not in index land.
https://themarketear.com/
 

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Are The Bond Vigilantes Back?

jessefelder

March 16, 2022
The long-term chart of the 30-year treasury yield may now be the most important chart in the world. For the past 30 years or so, the yield on the long bond has formed a fairly neat channel that has only been violated relatively briefly at times. The drop below 1%, at the height of the Covid panic, tested the lower end of that channel. Since then, it has reversed higher and now appears poised to test the upper end. This area also coincides with key horizontal resistance at 2.5% that dates back to the lows put in at the height of the Great Financial Crisis.
https://thefelderreport.com/2022/03/16/are-the-bond-vigilantes-back/
 
Chinese tech stock crash is now the worst ever
Jason Goepfert

We need to talk about tech

Whenever a conversation starts, "We need to talk about...", you know it's not gonna be good. And there is no worse not-gonna-be-good than Chinese tech stocks.

We've touched on this sector a couple of times. In September, the sector was about as washed out as it had ever been, with more than half of the stocks falling to a new low and the average stock suffering a massive 60% drawdown.

Over the next couple of months, the stocks did exactly what they should, which was precisely nothing. Bellwethers like Tencent were holding up well, showing relative strength and following through on their virtually perfect record of savvy stock buybacks.

And then the floor fell out.

The latest down leg has surpassed the financial crisis, with the average stock down a massive 74% from its 52-week high.
https://www.sentimentrader.com/blog...l&utm_term=0_1c93760246-14c0756b6d-1271291994
 

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SPY 1 hour chart: A nice move up since making a higher low @ (415.79)
 

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