Ed Clissold Profile picture
Sep 12, 2020 8 tweets 3 min read Read on X
A thread on Sept slide and how it's come when several cycles turn weaker:
Options appear to be part of the trigger. The equity P/C ratio fell to a 20-yr low on 9/2 but the index P/C was near its 20-yr avg. @NDR_Research 1/x
Equity/index P/C difference likely due to out-of-money call buying of mega-cap Growth stocks. Market makers hedged, partly at index level. The result was a spike in the $VXN.
Spread between implied vol (VXN) and realized $NDX vol was highest since 2015. 2/x
Implied/realized vol spikes usually comes after DECLINES, not rallies.
Chart shows $NDX returns before & after implied/realized vol >20. Only time NDX up more 6M prior was in 1999.
I'm not saying this is a 1999 replay, but it shows how weird the action was. 3/x
Regardless of the catalyst, several cycles were at points when stocks usually pause.
1st, rallies coming out of recessions are similar (on avg!) for first few months. Around months 4-5, gains slow in U recoveries vs Vs. Our macro team thinks it's a U that ended in April 4/x
2nd, the biggest correction in the first 9 months of a cyclical bull market comes around the 4.5-month mark (on avg!). That puts the pullback a little behind schedule. 5/x.
3rd, stocks tend to be weak in the two months before presidential elections. Uncertainty increases as the election comes into focus. Pullbacks tend to be stronger when the incumbent party has lost. 6/x
4th, our $SPX Cycle Composite peaked on Sept. 8. It combines the 1-, 4-, and 10-yr cycles.
Don't focus too much on the exact date, but seasonality is becoming a headwind. 7/x
Our sentiment composite hit its highest level since Jan 31 on Sept 2. It's now in its neutral zone.
From here, watch the technical damage as the extreme optimism of early Sept is worked off. If technicals contained, it will likely be a bull correction, as the four cycles imply.

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More from @edclissold

Mar 1
A 🧵on the election and markets:
Biden/Trump is a rematch no one wants, but Biden in particular has an approval rating issue. At 41%, he has the lowest of any president seeking reelection at this point in the year. The median for incumbents who won is 55%. @NDR_Research 1/5 Image
Taking Biden's reelection bid out of the equation, presidential approval acts like any sentiment indicator. A low % implies pessimism, which tends to be bullish for stocks.
For approval rating there's a "no bad it's bad" zone but Biden's approval would need to fall 6 points. 2/5 Image
The start of election years tends to be weak. Stocks have done better when the incumbent party has gone on to retain the White House. It's a chicken-and-egg argument. A strong economy helps stocks and therefore helps the incumbent. 3/5 Image
Read 5 tweets
Jan 26
The Fed is preparing the markets for a rate cut. Cuts have been bullish on avg. The DJIA has been flat before the 1st cut & up 15% a year later.
Context matters, esp. vs the economic cycle. (Btw, we use the DJIA for more history but trends are similar w/SPX). @NDR_Research 1/5 Image
When the Fed has avoided recession, stocks have ripped higher, +24% 1 yr later.
When the economy has been in recession within a year of the 1st cut, the DJIA has weak beforehand but +10% 1 yr later. Most of the gains came in months 8-12. Why? Again, context matters. 2/5 Image
Historically the Fed waited until near the end of the recession, after much of the damage was done.
When the Fed cut early in recession, stocks were mixed for months before rallying.
When the Fed cut before recession, the DJIA fell for 10 more months, on avg. 3/5 Image
Read 5 tweets
Jan 19
We're entering the ❤️ of earnings season, so here's a 🧵on where we are in the cycle.
1. The bull market has left the early sentiment-driven phase when "P" rises > "E" and entered the earnings-driven phase (e.g., EPS growth needed for bull to continue). @NDR_Research 1/6 Image
@NDR_Research 2. SPX trades not off EPS growth but the change in the growth rate. Consensus is calling for EPS growth to accelerate in CY24, which would be bullish.
Investors have learned that analysts are often too optimistic, so it's TBD if their positive outlook comes to fruition. 2/6 Image
3. A risk to consensus estimates are that they are back-end loaded. Single quarter y/y SPX operating EPS growth is expected to spike from <10% in Q1 & Q2 to 20% in Q3 & 18% in Q4. Comps play a role but that's baking in a soft/no landing scenario. 3/6 Image
Read 6 tweets
Jan 4
We published our 23 charts of 2023. A sample:
1. File 2023 under the market doing what is needed to prove the majority wrong. Recession and new lows were consensus in Jan. Not only did econ data exceed expectations, but the economy grew ⬆️trend & SPX gained 24%. @NDR_Research 1/5 Image
2. Partly due to the dour economic outlook, the market was ahead of the Fed in expecting rate cuts. A year ago fed funds futures expected the first cut in mid-2023. Powell followed through on his promise for higher for longer and is preparing for a mid-2024 first cut. 2/5 Image
3. Most surprising chart of the year? With focus on the Fed, many missed the massive fiscal stimulus. An 8.8% social security COLA increase, lower capital gains taxes, filing delays, and interest expenses contributed to the biggest policy stimulus outside war or recession. 3/5 Image
Read 6 tweets
Nov 4, 2023
If the last 8 months felt weird to you, well, you're right. The $SPX rose for 5 straight months then fell for 3 straight months for only the 4th time on record. 2 came at the start of cyclical bulls (2016 & 1975) & 1 occurred during the ultra-long 1939-42 bear. @NDR_Research 1/7 Image
What happened after the 3rd down month? A resumption of the uptrend has been more common than a continuation of the recent downtrend.
We expanded the study to include 4 up months. Results similar. SPX posted strong gains up to 12M later on avg. Last 50 yrs, up every time. 2/7 Image
Breadth was terrible during the correction. % of stocks above their 200-day moving averages fell as low as 26.7%. This week's rally triggered an oversold breadth signal. 3/7 Image
Read 7 tweets
Oct 16, 2023
Lots of talk about 2023 a lot like 1987:
-big ⬆️ yr +Q3 drop
-poor breadth
- inflation & rates ⬆️/hawkish Fed
-USD 💪
A closer look reveals several differences:
1. $SPX MUCH stronger in 1987. +39% at highs vs +21% in 2023. 1987 was yr 3 of bull vs yr 1 in 2023 @NDR_Research 1/9 Image
2. Breadth weak in Q3 in both years. A big difference is in 2023, several breadth gauges made new cycle highs on summer rally. They failed to confirm in summer of 1987.
On a negative note, new lows worse in 2023 than 1987. 2/9 Image
3. Rising rates were a theme both years. But...
-T-bills rose almost 2x as much with most in 2H 87
-Yields higher across the curve in 1987
-Yield curve was upward sloping vs deeply inverted in 2023.
We can debate how to interpret, but bottom line is rate regimes differed. 3/9 Image
Read 9 tweets

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