S&P500 Weekly ChartStorm: Bulls Stage Counterattack But Sentiment Falters


This Week: Bulls Stage Counterattack, Technicals, Sentiment Snippets, Buybacks, Margin Debt, Investor Positioning, China Stocks Capitulation

1. Bulls Stadium Counterattack: Big buy on Friday as the 4400 level and the 50dma were recovered. This follows a bullish RSI divergence (and deep pessimistic sentiment – ​​see upcoming charts) and a “death cross” (when the 50d-ma crosses below the 200-dma): which is described as a slow bearish signal designed to detect the market regime. turns into bear markets/downtrends, but has a patchy track record with many false positives…

Source: @Callum_Thomas

2. Cross of Death… “when the 50dma goes below the 200dma”

Like the S&P 500, 50% of the countries we follow (35/70) have put a “death cross”, along with the itself. Although, note that the Death Cross has signaled 11 of the last 2 bear markets for global equities!

Source: @topdowncharts

3. Market Scope: When it comes to market breadth indicators, it’s interesting to note that the S&P 500’s 200-day moving average breadth indicator is bouncing back…from very similar levels at the end of 2018 (when a series of ups Fed rate scuttled the markets).

Source: @MarketCharts

4. Panic Stations: This sentiment indicator (composite of AAII & Investors Intelligence surveys) officially fell below pandemic panic levels this week!

Source: @topdowncharts

5. Bubbles of consensus: On the other hand… The Consensus Bulls indicator just broke below 50% this week (at 49%), which compares to the long-term average of 51.5% (in contrast, this indicator fell to 22% in March 2020, 18% in March 2009, 36% in December 2018). Basically, my reading of this is that the market, and broader market sentiment, is still swinging between correction and bear market.

Source: @topdowncharts

6. Redemptions: Takeovers to the rescue? “S&P 500 companies submitted buyout plans worth $238 billion in the first two months of 2022, according to Goldman Sachs data, a high at this point in the year.”

Source: @WSJ via @DiMartinoBooth

7. Margin Debt: Checking for deleveraging progress…another D-word for this one is divergence. More shoes to drop off?

Source: @t1alpha

8. Sentiment, Positioning and Leverage Bets: In the scheme of things though, investors are still fairly all-in (despite gloomy sentiment), especially leveraged buys.

nb The blue line in the graph represents the combined margin debt, speculative futures and leveraged ETFs (normalized to market capitalization), the black line represents the average portfolio allocations to the stocks of the AAII portfolio survey and total AUM figures from ICI.

The key point is that despite extreme pessimism in the sentiment polls, investors/speculators have yet to capitulate and make up their minds on real positioning.

Source: @topdowncharts

9. Speaking of surrender… No capitulation in US equities, but certainly an element of capitulation in China. Global investors have been selling Chinese stocks at a record pace (perhaps spooked by geopolitical/country risk following what happened with Russia…not to mention the “macro hostile”, e.g. real estate, etc).

Source: @FT via @MichaelAArouet

10. Forward PE ratio reset: The forward PE ratio has nearly hit the 8x lucky number (meanwhile, the US forward PE ratio is still hovering around pre-pandemic levels – definitely not cheap (yet)).

Source: @MarketPicture

Thanks for following, I appreciate your interest!

oh… that’s right, I almost forgot!

BONUS CHART >> must include a goody for goodies that have subscribed.

Differences in feelings: Polled sentiment is in a state of deep pessimism, and yet economic sentiment still remains fairly bullish (for now).

This chart shows a composite view of economic sentiment (manufacturing, consumption, small business, housing industry, service sector) and compares it to the same for investor sentiment (optimism studied in the AAII and Investors Intelligence surveys). Clearly, there is a strong divergence of opinion when it comes to the market versus the economy…

Interestingly, this is quite similar to what I noted in the Weekly Chart Storm: investor sentiment stands in stark contrast to investors’ actual positioning (i.e. they are very bearish , but haven’t really reflected it in their portfolios or bullish stock bets). One wonders if there are any other shoes to drop, so to speak, when it comes to economic sentiment and investor positioning.

Getting back to the economy, another chart that caught my eye this week was the divergence between US consumer confidence surveys…

In an intriguing development, the University of Michigan index diverged hugely lower from the Conference Board index. You have to go all the way back to… the 1970s to find a similar type of divergence.

This last statement should be informative. We basically have a commodity shock similar in nature (focused on geopolitics) and magnitude (especially given the magnitude of the commodity boom) to what happened (twice) over the course of of this decade.

The UoM survey puts more emphasis on price, so we can only assume that the UoM survey essentially gives us a truer picture of how the consumer really feels about runaway inflation.

Soaring inflation presents a real headwind and a real headache for consumers and the economy as a whole. And more specifically, gives the Fed a reason to pull itself together in an attempt to curb rising inflation expectations.

Tough times are ahead for consumers and investors.


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