Weekly S&P500 ChartStorm - 27 June 2021

Your weekly selection of charts...

Welcome to the Weekly S&P500 #ChartStorm (by email!)

The Chart Storm is a weekly selection of 10 charts which I hand pick from around the web (+some of my own charts), and then post on Twitter.

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.

Hope you enjoy!

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1. Stockmarket Seasonality:  The S&P 500 is following the seasonal script so far...

FAQ: "why use 2 axes?" because the seasonal line is an average, and hence volatility will naturally be compressed so much so that it's going to be meaningless to put them on the same scale. Also we're more interested in the pattern/signal of seasonality: the forest, not the trees.

Source: @topdowncharts

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2. Volatility and the Stockmarket - a Seasonal Perspective: This chart gives you a useful seasonal map of the markets - as you might expect, on average, the S&P500 and the VIX move inversely through the year. The key takeaway is that the seasonal tendency for the next few months is poorer returns and higher volatility...

Source:  Blog - Seasonal Shifts

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3. The SKEW Index:  New All-Time-High for the S&P 500 and for the SKEW. The CBOE SKEW Index is often described as a measure of demand for tail-risk hedging. There is debate that it actually does represent that, but then again I wouldn't be surprised to see an actual increase in tail-risk hedging demand given the current macro/market backdrop...

Source: @topdowncharts

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4. Equal-weighted vs Market Cap-weighted S&P500: Looks like the easy gains are locked-in, and now we are contending with resistance on this one... Interestingly enough, I’ve seen a lot of charts that look very similar to this across a range of markets/assets - which I would say makes this one all the more poignant.

Source: @mtimpane

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5. Leveraged ETF Trading Volumes:  Trading volumes in leveraged-LONG equity ETFs are still far out-shadowing volumes in short/inverse equity ETFs. Traders are clearly voting with their feet here — there is a much greater willingness to bet big on upside vs downside: greed rules for now.

Source: @topdowncharts

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6. Buybacks back: One of the biggest sources of buying of the past decade is back in force; buyback authorizations are running at a record pace through to June - should keep the market bid near term.

Source: @Goldriver2020

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7. Energy Bear Market:  The S&P500 Energy Sector just been through a major, decade-long, bear market in relative terms. A lot has gone on to get to this point, and in its place has been left a very interesting setup in my view - might have to write a blog on this topic!

Source: @chigrl

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8. Gold vs S&P500 ratio: Gold remains near historical lows relative to the S&P500. This prompts some observers to suggest there is value here and a chance for mean reversion (upside in gold vs stocks). I would point out however, for reference, this ratio has stayed low for decades at a time in the past. From my point of view a few things would need to go right for this to sustainably turn higher, and I don’t see them coming to fruition in the immediate term (but something to watch further out).

Source: @MacroLetterPro

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9. Weather Rotation Strategy — Spurious or Curious?  S&P Dow Jones put together an index that switches between US & UK equities each month, based solely on past month’s rainfall, where instances of >40mm of rain at Heathrow during the previous month triggers a switch from the S&P United Kingdom BMI [Broad Market Index] to the S&P 500 until next month. Remarkably, at least historically, it appears to have added a decent amount of value. Definitely curious…

Source: @LizAnnSonders & ⁦@SPDJIndices

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10. Inflation Talk:  Talk is cheap, except perhaps when talking about how expensive things are... record number of S&P500 companies talking about inflation during their Q1 earnings calls. Sign of the times, and confirmation of a major macro theme.

Source: @akaneotani & @FactSet

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Thanks for following, I appreciate your interest!

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oh… that’s right, almost forgot!

BONUS CHART >> got to include a goody for the goodies who subscribed.

The Euphoriameter:  digging out an old chart, which I had initially mothballed due to distortions in the components (see old page on the “Euphoriameter“). Key point is it has now reached multi-year highs.

The indicator seeks to provide a composite and slow moving/less-noisy view of market sentiment based on survey and market driven information. It has provided some useful signals in the past, and the current signal is one of euphoria.

It is notoriously hard to pick a market top, and I wouldn’t want to go out on a limb and call for a bear market or major crash just yet (although I am spending more and more time on defining and detecting when the risk/reward will change enough to turn structurally defensive in asset allocations).

That said, it would be fair to say that downside risk is elevated when the Euphoriameter runs up like this. But again, as alluded to - it’s only one part of the equation e.g. for me I’m looking for tightening of monetary policy and technical +macro signals as a means to decide when to turn bearish (not yet).

So take heed of this indicator as we progress later into the cycle.

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Best regards,

Callum Thomas

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