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Weekly S&P 500 #ChartStorm - 20 May 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. Lending Standards vs the S&P500: First up is an old favorite of mine, it uses the Fed's Senior Loan Officer Opinion Survey - specifically the net change in lending standards for commercial and industrial loans to large and medium firms. The line is shown inverted, so basically when lending standards tighten it points to downside risk for the market (because this both reflects weaker conditions and can lead to a credit crunch). But at the moment, this indicator is giving the green light for stocks. Definitely one to keep on top of as the cycle progresses.

Bottom line: Loan officers are giving a green light for stocks.

Fed loan officer bear market warning indicator for the S&P500

2. The line in the sand: Back on to the chart with the key lines - this has been a running feature the last few weeks as the 200-day moving average and the downward sloping trendline set the parameters for what looks like an increasingly indecisive market. So far we have seen an upside breakout of the down trend line, but at this point it doesn't look overly convincing.

Bottom line: The market has tapered off after the upside breakout.

S&P 500 triangle pattern

3. Small Caps vs Emerging Markets: A similar chart to this one was featured last week too. It shows the S&P500 against small cap ETF (IWM) and emerging market equities ETF (EEM), basically these are two different macro stories that are playing out in the background. The stronger dollar is positive for US small caps, and is putting EM under pressure. With the S&P500 obtaining over a 3rd of its income offshore, the strong US dollar story is well worth paying attention to as it logically creates winners and losers. Keep this one front of mind.

Bottom line: Small caps point to upside, EM equities point to downside.

small caps vs emerging markets chart

4. 200-day Moving Average Breadth: Back on the topic of 200-day moving averages, as the chart below shows, while the S&P500 index itself is above its own 200-day moving average, there's still just under half of companies trading below. As implied with the previous chart, the market breadth picture shows that under the surface things are actually less than clear cut.

Bottom line: Market breadth shows a lack of consistent strength, echoing the theme of indecisiveness.

S&P500 market breadth still middling

5. US Cyclicals vs Defensives: This is something I've been talking about for a while - the astonishing outperformance seen in US cyclicals vs defensives. Overall the relative performance line looks stretched. Perhaps more interestingly though is the apparent divergence opening up between the softening ISM manufacturing PMI and cyclicals vs defensives relative performance. It may just be a case of the ISM is reverting from overly enthusiastic readings (as the Markit PMI actually is moving upwards towards the falling ISM PMI). Anyway, I still see this as a potential vulnerability for the market... for now it basically confirms/represents the strong cyclical undertones that have been playing out over the past year, but it's certainly another issue to stay on top of.

Bottom line: US cyclicals vs defensives relative performance looks stretched.