Weekly S&P 500 ChartStorm - 23 Oct 2016

Those that follow my personal account on Twitter and StockTwits will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I'll pick a couple of themes and hammer them home with the charts, but sometimes it's just a selection of charts that will add to your perspective and help inform your own view - whether its bearish, bullish, or something else!

The purpose of this note is to add some extra context beyond the 140 characters of Twitter. It's worth noting that the aim of the #ChartStorm isn't necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to.

So here's the another S&P 500 #ChartStorm write-up

1. 50 day moving average breadth: The downtrend line in 50 day moving average breadth (% of S&P500 companies trading above their 50 day moving average) remains, and the breakdown in breadth goes to show the underlying weakness in the market despite relatively little movement in the headline index. At present the indicator is around oversold levels, but the logical conclusion of the downtrend is some sort of deeper market selloff. By the same token a break of the trendline will be positive.

Bottom line: While 50DMA breadth is starting to look oversold, it remains in a downtrend.

2. 200 day moving average breadth: While 50DMA breadth has collapsed, 200 day moving average breadth seems to be holding up so far, with over 60% of companies still above their 200 day moving average - not at oversold levels, but with decent room to move to the upside. The issue is, visually it looks like it's rolling over. You also have a minor case of divergence in that price has basically been going sideways while breadth has declined - it's not true bearish divergence in that price is not going up while breadth is going down, but it does give pause for thought.

Bottom line: 200 DMA breadth has not declined to the same extent 50DMA breadth has, showing that there is a certain degree of underlying strength still there.

3. Fear and Greed: Similar to the 50DMA breadth, the Fear and Greed Index has been trending down, and at some point if this trend continues it will show up as much less boring market activity. The other implication of the downtrend is that trendlines are made to be broken, and if and when it breaks to the upside it will likely be the part where the S&P500 breaks out of its trading range and heads to new all time highs, until then tread with caution.

Bottom line: The fear and greed index is in a downtrend.

4. Earning season is upon us: The bulk of US Q3 earnings reporting takes place over the next two weeks, and if you were looking for a catalyst for either a continuation or break of the downtrend in the chart above, this could be it. Indeed, signs are coming through already that the earnings recession may be over and done...

Bottom line: Earnings season crunch time is now - a possible catalyst for a move.

5. Sales growth: As FactSet show, sales growth has been going pretty well for most sectors of the S&P500 - this is not the type of chart you would see if there was a systemic issue or if the US was headed for recession. What is notable though is the divergence e.g. the services and consumer sectors are doing very well, whereas commodities and manufacturing - not so much. With commodity prices finding a floor and in some cases convincingly rebounding, the weak spots may well turnaround soon.

Bottom line: Going into Q3 there are some decent results coming through on the sales side.