The Bears Are Coming Out Of Hibernation… [DIRTY DOZEN]

“Comm. Corp. taught me to see the signal, like the signal, follow the signal. If you follow your system /methodology then over time your edge will kick in and you’ll end up ahead.” ~ Micheal Marcus

Good morning!

In this week’s Dirty Dozen [CHART PACK] we look at the narrative pendulum swinging closer and closer to a bearish consensus. We follow that up with reasons to expect further downside over the short-term. Chat rising bear market risk, TSM topping, ETHUSD dropping, and natty ripping, plus more…

AAII Net Bulls-Bears fell to its lowest level since early 13’. Investor’s Intelligence Net Bulls-Bears dropped to its lowest level since the COVID bear market low (II charts via Ed Yardeni)

Here are the forward returns for when AAII Bull readings have been this poor: 3-month average +5.55%, 6-month average +12.2%, with win rates of 94% and 97% respectively. Chart from SentimenTrader via @SethCL who’s a good follow on the twitters.

Here’s the latest Flow Show and BofA Fund Manager Survey summaries. The bearishness is nearing a consensus… Keep an eye on this Narrative Pendulum. I suspect we have one more washout leg lower that sets markets up for a run back near Jan highs. This is a big sideways volatile regime after all.

Here’s some great charts from NDR technician @edclissold. Ed wrote: “2 types of indicators have turned negative. 1st are economically sensitive areas. Transports have been a good “real-time economic indicator” for stocks vs bonds, and they’ve gotten crushed (they’re bouncing today).”

And another from @edclissold: “Rate-sensitive areas are underperforming. Homebuilders, autos (less so), and Brokers have rolled over (like Transports, some are bouncing today but in the context of relative strength downtrends).”

And last one from @edclissold: “The SHUT Index (Staples, Health Care, Utilities, and Telecom) measures defensive leadership. It’s rebounded and is testing its Mar 2022 high relative to the SPX. Defensive leadership + rising rates + economic slowing is not a recipe for a major up leg.”

And a little more bearish technical porn for you ZH readers out there. High Beta vs Low Beta Stocks (green) continues to roll over signaling more downside for the broader market.

I pointed this one out back in early March so just updating it again as TSM looks to be breaking down from its consolidation zone right below its major double top range. The semi-behemoth came out with better-than-expected earnings last week and the stock traded down. Not a good sign if you’re long.

Citi’s Bear Market Checklist is getting closer to triggering a “Bear Market Warning”. They “become concerned when amber + red signals surpass 50%. This tends to proceed bear markets.” The current reading is 45% and the data is trending in the wrong direction.

ETHUSD broke down from its recent coiling wedge. Think we see it trade back down to its 2,500ish level over the next couple of weeks.

Here’s a terrific chart from my bud @tom_morganKCP. Also, make sure to sign up for his weekly (link here). It’s one of my favorite regular reads.

I’ve been getting asked quite a bit what my price target is for natty, since we’re sitting on what’s grown into a large position. Well, the short answer is I don’t really have one. I mean, do I think the previous high of 13.50’ish is possible (red line)? Sure…

That’s maybe not probable but it’s definitely possible. Regardless, I prefer to trade the chart in front of me. Right now we’re trailing a close stop for partial profits. The rest we’ll continue to let ride until the market says the trend is over.