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Weekly S&P 500 #ChartStorm - 18 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 [note: this week features a whole lot of graphs from Topdown Charts, partly as a celebration of hitting the 3-month mark, and partly due to a minor dearth of charts].

1. 50-day moving average breadth: First up is an update of the 50dma breadth chart - as some might recall from last week this was also chart number 1 as the downward sloping trend line looks to be a key test for the market. At this point the breadth indicator has breached the line and pulled back - so there is a risk that the test has been failed. That would mean a short-term selloff or correction. But with positive seasonality still in force it may be too soon to call it on this one.

Bottom line: At this point it's looking like the market has failed the breadth test...

2. Market analogs - breakout decades: This interesting chart from HORAN Capital Advisors shows the experience during the 1950's and the 1980's after the market made a breakout. In both cases a significant bull market followed, and if these periods are anything to go by it could be an interesting next couple of years for the S&P500. (p.s. the usual caveats about analogs apply!)

Bottom line: If the bull market breakouts of the 50's and 80's are anything to go by the next few years could get interesting.

3. S&P500 seasonality: One of my favorite charts of the year, the market in 2016 has tracked its historical seasonal pattern remarkably well, with the exception of the panic at the start of the year, the Brexit, and the Election. Albeit since the election it has lagged its seasonal pattern slightly, but still is moving more or less in line. What that means short-term is the last 2 weeks of the year could see the S&P500 drive on to close above 2300 with relative ease as the "Santa Claus rally" kicks in.

Bottom line: Seasonality is still positive for the market.

4. VIX seasonality: On the topic of seasonality, the average level of the VIX also appears to be subject to seasonality; typically being higher in the second half of the year and lower in the first half of the year. As for the outlook, it's currently at the low point, and there seems to be a curious little seasonal spike that happens into year-end. I suppose this makes sense as liquidity will be tight and people may opt to put hedges on as the festivities take priority!

Bottom line: VIX seasonality shows a slight spike into year end.

5. Earnings outlook: This chart saw a lot of doubters when I first showed it (which was before that black line had really started to turn up). But anyway what it shows is the ECRI weekly leading economic growth indicator against the 12 month change in forward earnings. Long story short, whenever the economic indicator turns up - particularly after an earnings recession, it often flags an improvement in earnings growth. We've seen this confirmed elsewhere e.g. with the manufacturing PMIs making a clear turnaround. So on this indicator alone we should expect a more favorable earnings story over the coming months.