Weekly S&P500 ChartStorm - 10 October 2021

Callum Thomas

Topdown Charts

The Weekly S&P500 ChartStorm is a selection of 10 charts which I hand pick from around the web (+some of my own charts), and then post on Twitter.

The charts focus on the S&P500 (US equities); and the various forces and factors that influence the outlook - with the aim of bringing insight and perspective.

Hope you enjoy!

1. S&P500 — the lines in the sand: For much of the past year just focusing on the 50-day moving average was enough as the market fairly reliably bounced off that moving target. But at this point the S&P500 can’t even hold that 4400 level - to me that is the more important objective in the immediate term. Reassuringly though it is at least holding onto the 4300 level, for now. As far as I’m concerned, those two levels are the key triggers/guideposts for the next move.

Source: @Callum_Thomas

2. FinTwit Activity: This chart appears to show a surge in tweet activity by “Finance Twitter“ — it confirms what I intuitively/qualitatively know: the timeline tends to be busier when markets are going down (or more volatile). Is there information in this? Seems to be, but late-2018 provides a good example of how surges in this indicator can portend a deeper fall to come, vs a panic bottom.

Source: @BrightramLLC

3. Investor Movement Index: According to TD Ameritrade “Equity exposure in TD Ameritrade client accounts increased in the September period. The IMX moved slightly higher to 8.66 (up 3.34%) in September, as clients used the pullbacks from all-time highs to purchase equities.” … who can blame them? Buy The Dip has been the standard operating procedure for much of the past year. The thing to focus on though (in my view) with this chart is how stretched sentiment is.

Source: TD Ameritrade IMX

4. Stocks vs Bonds: This particular stocks vs bonds ratio looks to be breaking out after an initial attempt a few weeks back. Clearly bonds are at a turning point (Fed tapering + covid case tapering, not to mention sentiment/technicals on the move), and with stocks going sideways for now this has set things in motion. The issue will be how fast bonds move, as at a certain point if bond yields move too far too fast it will derail stocks. For now though, I would say on balance it’s a positive macro/market sign.

Source: @PrattyCharts

5. Yield Curve and Financials: Another bond market indicator - the yield curve has begun to steep again as 10-year yields price in higher growth/inflation/sentiment and the Fed continues to insist on no rate hikes any time soon. Typically this is good news for financials; particularly notable as the sector attempts to breakout to new highs.

Source: @sstrazza

6. Thoughts on “Cyclical Value“ and “Defensive Value“ Things are starting to look up for “Cyclical Value“ (energy & financials), which is in line with the previous couple of charts and the big moves in energy commodities. I would say though that defensive value probably has to wait until later in the cycle… What I believe this means for value vs growth is that we potentially see an initial wave of value edging out growth via cyclical value turning up, and then defensive value driving the second wave of performance for value vs growth later in the cycle.

Source: @topdowncharts

7. Speaking of Defense (the other kind)… This one is kind of surprising to see how US Aerospace & Defense has been lagging behind - despite all the Cold War 2.0 sabre rattling and the increasingly apparent emergence of a new space race (albeit it is worth noting that Space X is not publicly traded, and is not among the names in the ETF used in that chart). These are certainly interesting - and important themes, but at least one thing interesting in that chart is a prospective double-bottom.

Source: @topdowncharts

8. Dividends: A new ATH in dividends is on the cards; according to Howard Silverblatt of S&P Dow Jones Indices “dividends are back, as record earnings, sales, and margins have permitted companies to return to the business of returning shareholder wealth.” Promising development for investors and retirees in the extended low interest rate regime.

Source: @sherifa_issifu

9. Stick a Fork in FAANG: With global corporate tax hikes in the pipeline (a possible end to global “tax arbitrage“ [or insert other euphemism for tax avoidance!]), increasing regulatory risk, eye-watering valuations, and now... an apparent lower high in their market cap weighting: Look out below (or alternatively look out besideways - i.e. maybe they don’t drop but just meander along at a new plateau for a while).

Source: @SarahPonczek

10. New Paradigms in Valuations: Here’s a very interesting line “Are the traditionalists being too cautious? Some well-known Grahamites, after all, considered the market full valued as far back as two years ago. Clearly, something is going on that the old analytical concepts cannot account for.” — that quote comes from an article in 1987...! You heard the same things during the dot-com bubble, and very similar words more recently.

We never learn. Never.

Source: Today in 1987!

Thanks for reading!

Feedback/questions/views welcome in the comment section below:

Stay tuned for next week's edition!

Callum Thomas
Head of Research
Topdown Charts

Callum is Head of Research at Topdown Charts. Topdown Charts is a chart-driven macro research house covering global Asset Allocation and Economics.

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