May 16, 2022
Good morning,
Over the weekend, China put out some pretty horrible economic figures, confirming that it is hard to grow when you lock down significant parts of your economy. Combine that with a wheat export ban in India and the stagflationary forces from the world’s two most populous countries may be extending beyond their borders. All this to say Friday’s strong equity market bounce (S&P +2.51% on the day) may not see much follow through today. Futures are off their overnight lows but are still down 25-50 bps. an hour ahead of the U.S. open.
Wall Street loves its jargon, only 2wks ago we were challenging a favorite “Sell in May …”. Today we look at “Waterfall Declines” (WD). If we define it, and compare the historical data around previous incidents, the current waterfall decline has a duration that is spot-on average (40 days) but has a lower magnitude and smaller surge in volume than the average for those two measures. That may be somewhat comforting, at least from a duration perspective, but a more important measure may be what it took to officially end previous waterfall declines – a series of breadth thrusts (10:1 volume up days), uninterrupted by any 10:1 volume down days. Friday, for example, was a 14:1 volume up day. We need a few more in the coming weeks, without interruption, to start considering this WD completed.
Be well,
Mike