Weekly S&P 500 #ChartStorm - 7 April 2019

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 to explore 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 and color. 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 another S&P 500 #ChartStorm write-up!

1. S&P500 Buy & Hold and the Jan 2018 High: First up I thought it would be quite interesting to highlight how the S&P500 just this last week reclaimed the January 2018 highs. You might be wondering: "why would he pick the Jan 2018 high? the market peaked much later in the year" and that's true. But there's a couple of things going through my mind on this.

January 2018 was when the global economic and earnings pulse peaked out, and for a lot of global markets e.g. emerging and developed ex-US, this was the peak. Basically the market was running on fumes from then on. The other thing is that it was around January where longer term measures of sentiment peaked e.g. the Euphoriameter - so it's like the point of peak optimism and hype, and is a likely juncture where new investors began entering the market.

So with that context, the reclaiming of the heights now seems a bit more interesting, and indeed it's not far off making a new all time high. So those who bought back in Jan 2018 and actually held (how many would have made it through the volatility??) would be back in black now. Goes to show that sometimes bear markets are just as much about time as distance.

Bottom line: Those who bought at the Jan 2018 high are now only just back in black.

S&P500 jan 2018 high reclaimed

2. The 20% Drawdown Roadmap: The next chart from Volatility Quant shows where the S&P500 is tracking against the path of the average of the 10 most recent 20%+ drawdowns. It's a useful chart in that it kind of provides a playbook for the rebound. Of course, past performance is no guarantee of future performance, and past ranges are no barrier to entirely different patterns. That said, it is at the top end of the range, so some might argue it's gone too far (and others might argue it's actually a good thing because it's a sign of strength).

Bottom line: The rebound is broadly following the 20%+ drawdown playbook.

3. The Mini-Bear Roadmap: An excellent follow-on from the previous chart, this one by Jurrien Timmer of Fidelity Investments presents more of a conditional/filtered view of the rebound analog. He calls it the mini-bear roadmap, (good title!) and basically it's a composite of the last 3 non-recessionary bear markets. And it's basically going right to plan...

Bottom line: The market is following the mini-bear recovery roadmap.

4. S&P500 Golden Cross Signal: Next one shows how the S&P500 has nailed the golden cross signal. I wrote a note on this on the blog last week, but to summarize, a golden cross is when the 50 day moving average moves above the 200 day moving average. This signal is designed to identify the major trend (i.e. whether the market is in an uptrend/bull market).

As you can see with the chart there are a few false signals, so it is by no means infallible, indeed, along with the benefits there are a number of limitations (e.g. it will give a false signal in a ranging market, and during a false dawn bear market rally). But there are equally many and significant periods where the signal worked well.

Question I am interested in is whether it will be a catalyst to stem the tide of negative sentiment, outflows, and light positioning. I will be watching my monitors closely for confirmation there.

Bottom line: The S&P500 is now in golden cross mode.

S&P500 2019 golden cross signal

5. S&P500 Golden Cross Breadth: Next chart takes quite a different angle on the golden cross analysis and uses a breadth approach. I am a big fan of applying market breadth analysis techniques to other indicators rather than price, and this is a good example.

As you can see there was a big washout in this indicator where the proportion of industries of the S&P500 with a golden cross fell to a 10 year low. The pattern of total collapse and sharp recovery is a very bullish signal and looks more like a correction than a bear market.

Bottom line: The breadth of golden crosses itself has presented a bullish pattern.

golden cross breadth

6. Breadth Breakout: This chart is both adding to the bullish technicals evidence as well as providing a follow-up to what was a running chart in recent editions of the weekly charts. I had previously noted how there was a bearish divergence signal with 200-day moving average breadth (a series of lower short term highs) and the index (a series of higher short term highs).

I noted how while this is generally a bearish signal, it can resolve to the upside, like it has now. The breadth indicator has broken out to a new high, and is basically a sign of improving underlying strength (just as the previous breadth chart is).

Bottom line: Bearish breadth divergence has resolv