Weekly S&P500 ChartStorm - 27 March 2022
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...
1. Correction Drivers: status check as the rebound plays through...
-EPOL (geopolitics): rebound has stalled, relief rally constrained by uncertainty.
-LQD (credit/duration): bond yields surging, but credit spreads contained for now.
-ARKK (tech burst): bounce also seems to be stalling.
(p.s. also note: “roundnumberitis” at 4550?)
2. Bitcoin base = S&P500 based: If we think of Bitcoin as basically a barometer for the ebb and flow of risk appetite and liquidity, the apparent base in bitcoin (still needs to break out to the upside though) looks to be a positive sign for broader risk assets such as the S&P 500.
3. Seasonality: Yes it is different this time, it is always different, but worth noting that April is historically the best month (highest average monthly gain, and 74% of all Aprils in history were positive).
4. Seasonality “Yeah But”… But then again, mid-term election-year seasonality would suggest that any such April rally would be about it, short lived, followed by down-at-best through October.
5. Hedgers... hedging FOMO risk: Massive pivot from record shorts to now sizable longs. Long live the dip buyers? ¯\_ (ツ)_/¯
6. ETF Speculators: Similarly, trading in leveraged long vs short US equity ETFs has ticked up towards the long side after a hefty rinsing-out of previous speculative fervor.
(albeit n.b. this indicator’s track record in signaling bottoms has been early/false-dawny before... e.g. most notably recently in late-2018)
7. Yield Curve: A lot of talk on yield curves recently, as this chart seems to show, yield curve flattening/inversion (at least as measured by this version of the yield curve) is not so much an immediate issue... but basically presents a tell in terms of lateness-of-cycle. In other words, most of the time this was the kind of thing you saw later in the cycle, before a turn (but typically well in advance of the turn).
8. Stocks vs Commodities: Inflation is an equity killer.
Peaks in the S&P500 vs Commodities index ratio have served well in flagging major market tops for stocks. (inflation (where commodities are a key proxy/driver) places pressure on margins, consumers, and drives central bankers to tighten policy)
9. Living with Stagflation: So you've decided to move on with your life and just "live with stagflation". Here's what history says about where to allocate...
(n.b. past performance does not necessarily = future, etc)
10. Healthy Healthcare: Healthcare relative performance price ratio is bouncing off its very-long-term trendline: fairly reliable signal for a run in healthcare.
n.b. healthier healthcare relative performance is often actually an unhealthy signal for the health of the broader market (being typically a defensive sector).
Thanks for reading! Any feedback, questions and views are welcome in the comment section below.
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