Technical Strategy Daily Report Wednesday, August 22, 2018 Strategas Technical Strategy Team Chris Verrone, CMT (212) 906-0135 cverrone@strategasrp.com Todd Sohn, CMT (646) 292-7958 tsohn@strategasrp.com Thomas DiFazio (646) 292-7981 tdifazio@strategasrp.com TAKING EXCEPTION TO THE LONGEST BULL MARKET STORY 54% 72% S&P 500 50 & 200-Day MA % of Stocks Down -20% 63% Both 2011 and 2015 saw deep drawdowns for individual stocks. We believe both periods were bear markets given the bulk of stocks were down -20%. The most popular headlines we have seen over recent days are celebrating the current bull market as the longest in history. We take exception to this idea. Both 2011 and 2015 saw deep drawdowns at the individual stock level with over 70% of issues down -20% during the former and 63% during the latter. The Russell 2000 index was cut by roughly -30% in 2011, -27% in 2015, and also it s important to note that global equities endured severe drawdowns too (e.g. DAX down -30%, E.M. down -38%). Ultimately, while the S&P may have not reached the -20% threshold during these examples, in many cases the bar was reset around the globe. It s also worth considering the relative standing of an asset class when measuring bull markets. The S&P 500 did not decisively breakout relative to Bonds until late- 2016. By that measurement, the current bull market is barely 2 years old. As for yesterday s action, Small-Caps decisively broke out to fresh highs and the Industrials continue to assume leadership. We also have our eye on the Banks for signs of reacceleration. They re still a timely long to us. Please See Appendix for Important Disclosures
SMALL-CAPS HAVE SEEN 2 MAJOR CORRECTIONS RECENTLY Russell 2000 50 & 200-Day MA Down roughly -30% in 2011 and -27% in 2015, the correction in Small-Caps certainly reset the bar. 2
GLOBAL EQUITY MARKET BAR WAS ALSO RESET % Drawdown from mid-2014 to mid-2016 Shanghai Composite -49% Portugal PSI20-46% Brazil BOVESPA -41% Emerging Markets -38% Italy FTSE MIB -38% Spain IBEX -36% Hong Kong Hang Seng -36% Germany DAX -30% Japan Nikkei -29% Singapore STI -29% Taiwan TWSE -28% Sweden OMX -28% EuroStoxx 600-27% Canada TSX -27% France CAC -26% Netherlands AEX -26% India SENSEX -25% U.K. FTSE -23% Swiss Market Index -22% Australia ASX 200-22% Korea KOSPI -18% It s important to recognize that a majority of global equity markets endured severe drawdowns from mid-2014 to mid- 2016. The bar was reset. 3
1990 CORRECTION SAW 80% OF STOCKS DROP -20% S&P 500 1990 to 1992 50 & 200-Day MA 79% % of Stocks Down -20% The 1990 correction saw 80% of stocks drop -20%, though the index did not hit the typical threshold. This still seems like a bear market to us. 4
ALTERNATIVE VIEW NEW BULL CYCLE STARTED IN 2013 S&P 500 Since 1927 Breakout to new highs: April 2013 Breakout to new highs: September 1954 Breakout to new highs: November 1982 As an alternative, we can measure the length of bull markets by when equities breakout to new all-time highs. By this method, the current secular breakout did not occur until April 2013. 5
STOCKS DIDN T BREAKOUT RELATIVE TO BONDS UNTIL 2016 S&P 500 50 & 200-Day MA S&P 500 Relative to Treasury Bonds (TLT) Another important distinction we should consider. Equities did not breakout on a relative basis to Bonds until late-2016. By this measure, the current bull market is barely 2 years old! 6
STOCKS VS. GOLD ALSO A HELPFUL CYCLE INDICATOR S&P 500 Since 1974 S&P 500 Relative to Gold Equities outperforming Gold is another important input in determining the strength of a secular bull market. So far, so good. 7
S&P NOW VS. JANUARY HIGHS S&P 500 200-Day MA With the S&P back to the January highs, it s worth noting that the index is just 5% above the 200-day moving average. The reading at the prior highs was roughly 14% which is in the 95 th percentile of historical readings. The punchline: there s room to run here. % Above / Below 200-Day Average 95th Percentile 5 th Percentile 8
INDUSTRIALS LEADERSHIP IMPROVING S&P Industrials Sector Equal-Weight 50 & 200-Day MA Industrials Relative to S&P 500 Equal-Weight 65-Day High Line Continued improvement from the average Industrial stock is a positive. 9
BANKS NEXT TO MOVE? KBW Bank Index 50 & 200-Day MA Subtle signs of acceleration for the bellwether Banks. They remain a timely long here. KBW Regional Bank Index 50 & 200-Day MA Regional Banks are also showing signs of reaccelerating. 10
ATTRACTIVE REGIONAL BANKS 11
AMEX BREAKING OUT 12
EQUIPMENT BELLWETHER BREAKOUT 13
EMERSON ACTS WELL 14
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