,
24 tweets,
8 min read
Read on Twitter
1/ Today I'll focus on everyones favorite asset class — US equities.
I got 15 interesting charts to share with you guys covering everything from price, breadth, sentiment, credit spreads, volatility, economic data and more.
I got 15 interesting charts to share with you guys covering everything from price, breadth, sentiment, credit spreads, volatility, economic data and more.
2/ We start with the short term.
Friday's close was interesting if you are a technician. We saw an outside day reversal, as price printed a higher high, followed by a lower low relative to yesterday.
Short term signals aren't important, but outside days are worth mentioning.
Friday's close was interesting if you are a technician. We saw an outside day reversal, as price printed a higher high, followed by a lower low relative to yesterday.
Short term signals aren't important, but outside days are worth mentioning.
3/ US large cap equities came within all time highs, as the price broke out above 2,800 resistance from late February.
But it seems Friday's sharp sell off reversed that break out. Notice that Dow Jones & Russell 2000 also failed to make a higher high.
But it seems Friday's sharp sell off reversed that break out. Notice that Dow Jones & Russell 2000 also failed to make a higher high.
4/ I'm not a bull or a bear. I'm an investor.
I'm merely commenting on what is. There are no opinions, suggestions or narratives here — just objectivity & focus on the one true measure: the price itself.
I'm merely commenting on what is. There are no opinions, suggestions or narratives here — just objectivity & focus on the one true measure: the price itself.
5/ So let us observe the price "trend" from the long term perspective, shall we?
We have recovered back above the 1-year average (some like to use 200 day MA).
Some technicians and quants would call this an uptrend. Simple as that, really. Don't over complicate it.
We have recovered back above the 1-year average (some like to use 200 day MA).
Some technicians and quants would call this an uptrend. Simple as that, really. Don't over complicate it.
6/ Also, observing the chart above & notice that over the last 30 years US equities have achieved over 10.4% CAGR.
Take notice of that, it's important. Ask yourself if you are getting anything close to that over the 3, 5, 7 or 10 years?
If yes, why? If no, why not?
Take notice of that, it's important. Ask yourself if you are getting anything close to that over the 3, 5, 7 or 10 years?
If yes, why? If no, why not?
7/ So the equity prices corrected sharply on Friday and indices like the Dow and Russell have been flatlined since late February as tech led higher.
It shouldn't be a surprise to see volatility rising higher. The VIX index found support on an important trend line and jumped!
It shouldn't be a surprise to see volatility rising higher. The VIX index found support on an important trend line and jumped!
8/ Some investors tend to think that volatility will continue to trend higher as the late cycle draws to a close into a recession.
Volatility can rise together with equity prices. Remember the late 90s? This process went on for quarters, if not years.
Volatility can rise together with equity prices. Remember the late 90s? This process went on for quarters, if not years.
9/ Credit spreads also tend to correlate closely to volatility and give investors additional clues (and warnings) about the stock market trend.
Personally, I don't see anything out of the ordinary from credit spreads right now. Make sure you keep close attention, though.
Personally, I don't see anything out of the ordinary from credit spreads right now. Make sure you keep close attention, though.
10/ What about the high yield spreads?
High yield spreads did get rather tight in 2017/18 — this is the time we took the foot of the gas.
Bears will be wondering if S&P makes new highs without the spreads confirming? Bulls will be paying attention to price trends, instead.
High yield spreads did get rather tight in 2017/18 — this is the time we took the foot of the gas.
Bears will be wondering if S&P makes new highs without the spreads confirming? Bulls will be paying attention to price trends, instead.
11/ Another way to track equities, movement of interest rates and change in credit spreads is via the financial conditions index.
Coming out of the negative readings for quarters is the end of the "lull" so above 0 can sometimes be a worry. We are right there now.
Coming out of the negative readings for quarters is the end of the "lull" so above 0 can sometimes be a worry. We are right there now.
12/ Lets focus on the market internals now. Short term breadth sold off recently, nothing dramatic yet.
Percent of stocks above 50 day MA reached over 90% in the crash aftermath — commonly viewed as a breadth thrust.
Last time we a thrust was in Feb 2016, during an Oil bottom.
Percent of stocks above 50 day MA reached over 90% in the crash aftermath — commonly viewed as a breadth thrust.
Last time we a thrust was in Feb 2016, during an Oil bottom.
13/ Depending on your stance, bull or bear, you could read this chart differently.
Bulls would say ⅔ of stocks jumped above the 200 day MA during 2019 recovery.
Bears would say just over ½ of stocks are currently above the 200 day MA while the index is close to record highs.
Bulls would say ⅔ of stocks jumped above the 200 day MA during 2019 recovery.
Bears would say just over ½ of stocks are currently above the 200 day MA while the index is close to record highs.
14/ That's the problem with people's opinions. The smartest ones have the most convincing narratives to make you believe (they already made themselves believe).
But then you look at their performance over 3, 5, 7 or 10 years and they are failing to keep up with $SPY ETF.
But then you look at their performance over 3, 5, 7 or 10 years and they are failing to keep up with $SPY ETF.
15/ So what do I do with this signal? How do I read it myself?
For me this chart is always just noise, unless the market starts crashing and the indicator gets below 20%. That is when I start to pay attention.
But to act and buy correctly, it takes more than just one indicator.
For me this chart is always just noise, unless the market starts crashing and the indicator gets below 20%. That is when I start to pay attention.
But to act and buy correctly, it takes more than just one indicator.
16/ I find it interesting that while the moving average breadth started to decline this week, especially due to Friday's sharp sell-off, the bullish percent measure did not.
Over 70% of US large caps remain on a buy signal.
Over 70% of US large caps remain on a buy signal.
17/ Finally, the number of new lows is not rising right now. It is actually quite a subdued reading in all fairness, considering readings were higher even during 2017 — a year of consistently monthly gains and very low volatility.
18/ Ok, one last one for the breadth enthusiasts other there.
What am I looking at?
I want to see NYSE advance declines and up-down volume to high a pretty high ratio over a 3-month period. It looks like it's pretty much there.
This would be the big-daddy of breadth thrusts!
What am I looking at?
I want to see NYSE advance declines and up-down volume to high a pretty high ratio over a 3-month period. It looks like it's pretty much there.
This would be the big-daddy of breadth thrusts!
19/ Bears should notice quite a few fails there. Markets get so overbought, mean reversion kicks in.
However, what you want from this indicator is high readings of 0.44 & over, right after a bear market or a sharp correction.
However, what you want from this indicator is high readings of 0.44 & over, right after a bear market or a sharp correction.
20/ Ok, enough about the technical side. Let's cover some fundamentals here.
Valuations we covered last Sunday. Long term, US equities are priced to disappoint. They did achieve a stellar 10-year CAGR of close to 17%!
Every man & his dog are covering the yield curve right now.
Valuations we covered last Sunday. Long term, US equities are priced to disappoint. They did achieve a stellar 10-year CAGR of close to 17%!
Every man & his dog are covering the yield curve right now.
21/ What concerns me more than fund manager exposure, newsletter sentiment, DSI readings, COT positioning, and all that stuff is consumer confidence.
The public is usually wrong at major turning points. We might not be there just yet, but we are getting closer...
The public is usually wrong at major turning points. We might not be there just yet, but we are getting closer...
22/ I hope I am also not suffering from the recency bias, like so many investors tend to. It seems the last thing that happens, is the thing that must happen again. But it never does.
I wonder if my recency bias is the cycle similarities between 1998-2000 & 2018-20xx?
I wonder if my recency bias is the cycle similarities between 1998-2000 & 2018-20xx?
23/ Jobless claims are now rising, too.
They tend to do so before a recession occurs, lead times vary. History doesn't repeat, but it does rhyme.
The cycle is aging, stocks are expensive — but doesn't necessarily have to stop this bull.
They tend to do so before a recession occurs, lead times vary. History doesn't repeat, but it does rhyme.
The cycle is aging, stocks are expensive — but doesn't necessarily have to stop this bull.
24/ Last chart today. US leading economic indicators (LEI) are still expanding.
But, and there is always a but, the rate of growth is slowing. This is the critical part. If the LEI goes negative, more often then not, it tends to signal a recession.
Keep an eye on this one!
But, and there is always a but, the rate of growth is slowing. This is the critical part. If the LEI goes negative, more often then not, it tends to signal a recession.
Keep an eye on this one!
