Weekly S&P 500 #ChartStorm - 9 Aug 2020

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. But inevitably if you keep an eye on the charts they tend to help tell the story, as you will see below.

So here's another S&P 500 #ChartStorm write-up!!

1. Another key level cleared: It might be an understatement to say it was a solid week for the S&P 500. US large caps were up each day and cleared the 3300 hurdle. FAAMG gets a lot of attention, but breadth is improving slightly as we’ll discuss later. As for momentum, possible negative divergence has resolved with pricing moving higher.

What’s next? The all-time highs may in sight, but we are entering some difficult seasonality – late August through September can see bouts of volatility. Corporate earnings beating estimates by the most in at least the last 12 years might not support equity prices much longer as the bulk of reporting season has come and gone.

The SPX remains above key moving averages, however. The rising 50dma will approach 3200 this week while the 200dma is just slightly upward sloping nearly 10% below Friday’s 3351 close. It’s remarkable to look at the 200dma in isolation – you would hardly know there was a 35% drawdown earlier this year.

Bottom line: The beat goes on for the S&P 500. We have not seen much in the way of significant pullbacks in the last 6 weeks. While the area around the all-time high may provide some resistance, there was not a whole lot of trading activity between 3350-3400, so overhead supply should not be too great.

chart of S&P 500 and a key technical level

2. That bearish breadth divergence seems to have resolved to the upside, and now an interesting little bullish breadth breakout is underway: the percent of S&P 500 stocks above their 200-day moving average rose to its highest level in almost two months last Friday, helping to confirm recent rising stock prices. The spike in breadth on June 8 was care-of extreme outperformance from some of the biggest laggards during the prior several months.

Large caps and small caps continue to take turns leading the market from day-to-day. As for the S&P 500, the bulls would certainly like to see the percentage of components above their respective 200dma climb further should the index make new all-time highs. In the near-term, however, a small breakout in breadth should help support the index since more stocks could be turning the corner to longer-term uptrends.

Bottom line: The percentage of stocks above their 200dma within the SPX is considerably below levels from earlier this year, but recent action suggests more stocks are participating in the index’s advance.

chart of S&P 500 market breadth

3. The Fear & Greed Index moving further into greed mode: CNN’s Fear & Greed index gets a lot of play on finance Twitter. What is it exactly? CNN looks at 7 indicators: stock price momentum (price versus the 125-day moving average), stock price strength (the number of stocks hitting 52-week highs and lows on the NYSE), breadth (upside volume versus downside volume), the equity Put-Call Ratio, the yield spread between investment grade and junk bonds, the VIX, and finally the return difference between stocks and Treasuries. So it’s a quantitative approach to gauging fear and greed (aka sentiment). CNN’s index has risen to the highest level since early 2020, suggesting more investors are feeling greedy than fearful. What’s driving the latest spike? It might be the equity Put-Call Ratio – we have written on this indicator in recent ChartStorms. It is extremely low; which means investors are buying up call options more than put options.

What do some of the other indicators suggest? The breadth indicator turned ‘extreme greed’ given rising participation we discussed earlier. Also in the ‘Greed’ zone is the price spread above the 125-day moving average (currently 12.4% - rather high). The only indicator at ‘Neutral’ is the VIX which is not far above the long-term average (currentl