Weekly S&P 500 #ChartStorm - 4 Dec 2016

Those that follow my personal account on Twitter 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. Bearish divergence (RSI): The first chart, ominously, is a mild case of bearish divergence i.e. higher highs on price and lower highs on the RSI. Bearish divergences don't always work, but the idea behind it is that the market is going up without the same force or commitment. It does serve as a warning, and something to be mindful of for those concerned about the short-term gyrations. The other way of viewing it would be as a possible buying opportunity approaching if a correction does unfold.

Bottom line: Bearish divergence vs the RSI spotted on the weekly chart.

2. Bearish divergence (breadth): Bearish divergence has also been spotted vs 50-day moving average breadth. In this case what it represents is lower participation of the index, which can be a sign of problems in a group of companies or certain sectors. For example at the previous high, 50dma breadth rose to over 80%, while it capped out at 70% in the latest high. Divergences can resolve in a benign fashion, but it warrants noting as a potential warning flag for a short-term correction.

Bottom line: Bearish divergence spotted on the 50-day moving average breadth chart.

3. TRIN Overbought: The TRIN or TRading INdex is an indicator that combines advances and declines with trading volumes to producer an oscillator which shows if the market is oversold or overbought (i.e. when the indicator hits extremes). As with most oscillators for equities, oversold signals tend to work better than overbought signals. That all said, the TRIN recently hit overbought levels - as shown in the graph below from Willie Delwiche. Thus you could say the odds of a short-term selloff are elevated on this measure.

Bottom line: The TRIN reached overbought levels.

4. Tail risk hedgers: These two indexes track demand for/activity of tail risk hedging; specifically, the SKEW Index reflects demand for tail risk hedging in the options market, while the VVIX represents option pricing for options on the VIX (which could be interpreted as crash risk protection e.g. a call option on the VIX would provide protection in the event of a sudden market crash i.e. spike in the VIX Index). Anyway the point is both indexes have begun to stir; nothing like June pre-Brexit vote or in November around the election, but you can tell from this chart that at least some investors are beginning to grow wary.

Bottom line: Tail risk hedging activity is beginning to stir based on the SKEW and VVIX indexes.

5. ETF Flows: This graph shows daily fund flows for the major S&P500 ETF, SPY, before and after the US election. You can see prior to the election flows were erratic and predominantly negative, following the election there was major net inflows, but more recently it seems to have switched from the initial euphoria to more erratic ambivalence. All up since the election there's been over $7B of net inflows into the SPY ETF (which has AUM of just over $200B).

Bottom line: S&P500 ETF flows have gone from post-election euphoria to ambivalence.