The purpose of this post is to add extra color and commentary around the charts.
The charts focus on the S&P500 (US equities); and the various forces and factors that influence the outlook - with the aim of bringing insight and perspective.
Hope you enjoy!
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1. S&P500 Seasonality (Again!): It’s everyone’s favorite chart again. I noted on Twitter that there is still some seasonal updrafts headed into year-end, but I also pointed out how the rally has already been fairly significant. Perhaps even a little overcooked against the typical seasonal trend.
2. Winning Streaks: But before we go getting bearish, it’s worth highlighting these interesting statistics. Whenever the market has been up 20%+ YTD through to October (like e.g. THIS YEAR), it has *always* had an up month in November (albeit with a n=8). Basically I would say it speaks to the momentum in the market, which despite the September stumble seems pretty much alive and well.
3. China Credit Crunch: I remarked the other day on Twitter that when the Evergrande issues initially came to the attention of global markets that folk were perhaps overreacting --- but now I can't help but wonder if folk are underreacting. Particularly in the face of charts like the one below. I still think that push comes to shove, the PBOC steps in and prevents wider contagion within China (and therefore rest of world). But I am paying closer attention than usual to the macro/property/risk backdrop in China, and there are some clear downdrafts in play at the moment.
4. Smart Money? So-called smart money hedgers have sharply increased their long positioning in US treasuries (a bet that would pay off if bonds rallied e.g. in response to a growth scare or policy mistake), and short positioning in equities (a position that would pay off if equities fell out of bed). Basically a double-bearish position. Now in fairness this is “hedging“ so it may just be a hedge against a possibility triggered by volatility/momentum-driven market models. But interesting to see such a sharp shift.