Weekly S&P500 #ChartStorm - 11 Mar 2018

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. The 50-day Moving Average: First up is a quick snapshot of the index, which shows Friday's close comfortably clearing the 50-day moving average. For simple trend following systems this is going to mean risk-on, and will likely see follow-through buying come Monday, all else equal. It also appears to show the completion of the so-called "W-shaped recovery" (vs V-shaped recovery), expected by many. So a couple of promising signs here.

Bottom line: The S&P500 closed above its 50-day moving average on Friday.

2. 50-day Moving Average Breadth: Looking at the individual components of the index, there's still only just over 50% trading above their respective 50-day moving averages (52.79 according to Index Indicators). So it certainly raises questions around whether we see broader participation in the rally, or just the heavy weights doing all the heavy lifting, and on that matter we turn to the next chart.

Bottom line: Only 52.79% of S&P500 companies are trading above their respective 50-day moving averages.

3. The Equal-Weighted S&P500 vs the Cap-Weighted S&P500: This interesting chart from J.C. Parets of All Star Charts shows the relative performance of the equal-weighted vs market cap weighted versions of the S&P500 - basically if the cap-weighted is outperforming it means it's mostly the heavy weight stocks that are driving returns. So again this goes to the question of whether we see more representation from the small and mid cap stocks as the market recovery plays through. 2017 was mostly a story of the heavy weights leading the charge, particularly as small caps lagged, given the setup in the chart, we could be at a turning point on this one.

Bottom line: The market cap vs equal weighted S&P500 chart shows heavy weights drove returns in 2017.

4. Twitter Sentiment Market Breadth: On the topic of breadth, this unusual chart shows the breadth of Twitter sentiment, in other words: is the predominant conversation about stocks on Twitter mostly bullish or mostly bearish? What's interesting about this chart is how the bullish tweet activity had fallen off substantially, an bearish tweets picked up somewhat. At this point Twitter breadth is looking fairly washed out - likely a contrarian bullish signal.

Bottom line: Twitter breadth took a turn to the bearish side, a potential contrarian bullish signal.

5. ETF Flows: A fun fact is in order - did you know: in 2017 net flows for a major S&P500 ETF, SPY, were +$10.6 billion... this contrasts to -$18.5 billion in the 2018 year to date. Again I would tend to view this as a contrarian signal of sorts - people putting their money where their mouth is in terms of investor sentiment. It's probably a mix of delayed reactions to the correction, and those using the rebound in the market to take some money off the table. Makes you wonder if/when the transition will take place from the mindset of "buy the dip" to "sell the rally".

Bottom line: 2018 saw a massive turnaround in flows from positive in 2017 to negative YTD.

6. Leveraged Long and Short ETF Assets: Staying with ETFs, this chart shows the total Assets Under Management ins leveraged long and short US equity ETFs. Curiously short exposure ETF and ETN products have seen a reduction in AUM through the correction (which I guess makes sense if those selling short liquidated their positions after profiting from the initial phase of the correction). Meanwhile leveraged longs have been picking up. This leaves the 'net-position' between the two sharply higher. Squaring it up with the previous chart it goes to show that taking money off the table and going outright short are two very different decisions.

Bottom line: Leveraged long ETF AUM has gone up and short ETF AUM gone down through the correction.

7. Insider Transactions Ratio: This chart from Barron's shows the "insider transactions ratio" (ratio of insider sales to buys). Their rule of thumb is that readings under 12:1 are bullish. While insiders are supposed to be smart money (you'd expect them to be selling if they thought their company was no good), it seems plain old fashioned fear and greed are what's driving their actual decisions. I guess it makes sense, if it's a case of employees being granted stocks or stock options, the logic would be something like 'well if the market is falling I better hurry up and cash in my stock while I still can'. Certainly another interesting chart and signal to add to the mix.

Bottom line: The Insider Transactions Ratio has moved into the bullish zone.

8. Fear and Greed Index: The CNN Money Fear & Greed Index has taken a turn - greed is coming back to the market. It goes to show how quickly price can move sentiment, and it lines up with what I was saying in the first chart of this week's session i.e. that now that price is back above the 50-day moving average and the "W-shaped" recovery appears to be in, it's going to be back to business for many investors and traders as plain old "fear" gives way once again to fear - of missing out, aka FOMO.

Bottom line: The Fear and Greed Index is in the process of moving from fear back to greed.