Morning Note: Despite March Rally, “Overall’ Equity Market Conditions Remain Negative

Below is the intro to our internal reporting on the latest reading of our own Equity Market Conditions Index (EMCI).

I included our commentary on the dollar, as I believe it was telling in terms of last month’s stock market action, and will continue to be going forward:

3/31/2023 PWA EQUITY MARKET CONDITIONS (EMCI) INDEX: -50.00 (-16.7 from 2/28/2023)

SP500 past 30 days +3.51%:

Despite March’s impressive (2nd half) rally, EMCI declined another 17 points on the month, to our lowest reading since August 2022… Denoting further deterioration in equity market conditions – and warranting a cautious-leaning portfolio allocation stance with regard to US equities.

While our sentiment (contrarianly net fear) and our interest rates/liquidity indicators showed moderate improvement, sector leadership (from positive to negative), the US dollar’s near-term technical setup (from neutral to negative) and SP500 longer-term technical trends (from positive to neutral) deteriorated on the month.

Fed policy, US equity market valuation, economic conditions, geopolitics and overall credit conditions all remained (save for perhaps fed policy [somewhat softer guidance]) solidly in the negative category.

Inputs that showed improvement:

Interest Rates and overall liquidity (from negative to neutral)

Sentiment (from neutral to positive) – (net fear)

Inputs that deteriorated:

US Dollar (from neutral to negative)

Sector Leadership (from positive to negative)

SPX Technical Trends (from positive to neutral)

Inputs that remained bullish:


Inputs that remained bearish:

Fed Policy


Economic Conditions


Credit conditions (PWA Financial Stress Index)

Areas that remained neutral: 

Fiscal Policy

Equity Market Breadth

EMCI since inception:

SP500 since EMCI inception:


US DOLLAR: -1 (-1)

Last month began with a neutral technical setup for the dollar… By 3/10 the pattern turned bearish and the dollar had begun to roll over, trending downward to the end of the month — creating a nice tailwind for equities. In fact, stocks bottomed on 3/13, then proceeded to climb 6.6% through 3/31.

Top panel SP500, bottom panel US Dollar Index:

The setup right here reads bullish for the dollar, presenting a potential headwind for equities beginning early April: 

Asian stocks rallied overnight, with 13 of the 16 markets we track closing higher.

Europe’s mostly green so far this morning as well, with 12 of the 19 bourses we follow trading up as I type.

US equity averages are mixed to start the session: Dow up 300 points (0.90%), SP500 up 0.24%, SP500 Equal Weight up 0.18%, Nasdaq 100 down 0.51%, Nasdaq Comp down 0.40%, Russell 2000 up 0.41%.

The VIX sits at 19.34 up 3.42%.

Oil futures are up 6.49% (OPEC+ announced production cut yesterday), gold’s up 0.33%, silver’s down 0.63%, copper futures are down 0.54% and the ag complex (DBA) is up 0.83%.

The 10-year treasury is up (yield down) and the dollar is down 0.24%.

Among our 36 core positions (excluding options hedges, cash and money market funds), 19 — led by OIH (oil services stocks), XLE (energy stocks), VNM (Vietnam equities), ITA (defense stocks) and URNM (uranium miners) — are in the green so far this morning… The losers are being led lower by AMD, EWZ (Brazil equities), Albermarle, Amazon and XLC (communications stocks).

Macro analyst Darius Dale, in a Blockworks podcast last week backed out the latest rise in liquidity — as illustrated by the Fed balance sheet, the Treasury General Account and the Reverse Repo Facility (all things we closely track as well) — by the emergency lending programs to the banking sector “that must be paid back.” And found that we actually end up with a further contraction in overall liquidity.

Therefore he advises:

“…be cautious about extrapolating some of these metrics into the next bull market for a lot of these risk assets. I think there is going to be, quite frankly, a lot of pain ahead.”

Which, for the most part, jibes with our present overall assessment.

Have a great day!

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