Weekly S&P500 #ChartStorm - 1 July 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. 200-day Moving Average Breadth: First up is a look at market breadth for the S&P500 (proportion of S&P500 constituents trading above their 200 day moving averages). There's a few things to note with this one, first is how basically half of the S&P500 are trading below their 200-day moving average (a rough mechanical rule of thumb as to whether a market is in an uptrend or downtrend). Second is the point that it didn't really recover with the brief rally into June. Third is the bearish divergence - the rally into June took the market back to the March rebound level, but the recovery in breadth was much more muted. Basically this is all typically a reflection that there is underlying weakness in the market right now.

Bottom line: The soft breadth numbers indicate underlying weakness in the market.

S&P500 200-day moving average breadth

2. Global Equities - 200-day Moving Average Breadth: Staying with the topic of market breadth, but this time looking at a global perspective, and in this case looking at countries rather than stocks (i.e. the main benchmark of the 70 countries we monitor), the view is much worse. Global equity market breadth has completely broken down. So going on the same reasoning of the previous comments - there seems to be underlying issues for a majority of countries (and as I show in the next charts, EM is a big part of this). In terms of the historical signals that this indicator has generated, it normally does collapse leading into a major global equity correction, but the other thing to note is that it often indicates oversold conditions when it gets to these levels. As history shows us though, oversold markets can get even more oversold.

Bottom line: Global equity 200-day moving average breadth has broken down.

Global Equities - 200 day moving average breadth

3. S&P500 vs Emerging Markets and Credit: This next chart in my opinion shows how Fed quantitative tightening and the resurgent US dollar are having a severe negative impact on financial conditions globally, and particularly for emerging markets. The price action of the last week suggests the potential for the developing stress in emerging markets to spillover to the S&P500. This is a key risk for global markets.

Bottom line: Emerging stress in emerging markets may spillover to the S&P500.

S&P500 vs emerging market equities, emerging market bonds, investment grade credit

4. S&P500 vs Financial Conditions Index: Here's another angle on financial conditions from Jurrien Timmer of Fidelity Investments. It shows the S&P500 against the US financial conditions index, and as with the previous chart, there is a clear divergence. Unless we see some form of easing of financial conditions, the risk is that the S&P500 is the one to move and close the gap. Basically if this gap persists or if financial conditions tighten further then from a short term risk management perspective the market is basically just waiting for an excuse/catalyst to selloff further.

Bottom line: The tightening of financial conditions presents downside risks to the S&P500.

S&P500 vs US financial conditions