Weekly S&P500 ChartStorm - 25 June 2023
This week: stock market technicals, bear market rallies, AI hype, breadth, valuations, seasons and cycles, VIX warnings, balance sheet imbalances, and freight recession...
Welcome to the latest Weekly S&P500 #ChartStorm!
Learnings and conclusions from this week’s charts:
Zooming out, the rally off the October lows looks solid, and has crushed previous bear market rally records (which means it’s probably not a bear market rally).
Zooming back in though it looks like most of the upside this year is down to AI hype (and the rest of the market still looks bearish — or at best a range-trade).
There is a wide valuation gap between big tech vs the rest of the S&P500.
VIX futures spreads, central bank liquidity, and domestic freight rates are among the indicators cautioning near-term downside risk for the stockmarket.
The VIX and the S&P500 are sticking to their seasonal script, which has meant tailwinds in H1 (and seasonal headwinds into Q3).
Overall, on this week’s charts its basically a picture of smooth sailing on the surface, some turbulence in the waters below, and rough waters ahead.
1. Onwards & Upwards: In this chart Mark highlights how “the run-up since Oct 2022 has featured classic breadth thrust, breadth recovery, and price momentum, suggesting a cyclical advance toward SPX 5400-5600”. It's an interesting observation and probably a minority perspective in terms of the scenario/targets suggested.
2. Long in the Tooth: If this is still a bear market rally it will end up being the longest bear market rally in history (which probably means it isn’t a bear market rally!).
3. High in Gains: If this is a bear market rally, it will also be the most substantial bear market rally *in terms of retracement of preceding decline* on record. Again, probably another sign that it is not a bear market rally. But that’s not to say there is no chance of a bear market... You could easily get a situation where you have what some might call a short-sharp bull market, followed by a new bear market.
4. All Just AI Hype? If we look at the S&P500 excluding the AI Boom stocks, it looks much less gainy, on first glance on this window of time it does not look at all like a bull market, at the very best maybe a “crab market” that moves in a sideways range-trade.
5. Equal-Weighted Evenly-Balanced: Indeed, looking at the equal-weighted version of the S&P500, it’s a wash, no new lows since October, but basically a sideways moving range trade since early-2022 (and well, basically going no where since mid-2021). And since the Oct/Nov rebound, market breadth for the S&P500 has likewise been drifting between average and mediocre (much like my high school grades).
6. Relative Value? Depending on your perspective, you might say big tech is stretched expensive, or you might say the rest of the S&P500 is cheap on a relative basis, and hence has catch-up potential.
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