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Weekly S&P 500 ChartStorm: Equal Weighted Strength; Sentiment Vs. Stock Exposure

By Callum ThomasStock MarketsMay 22, 2022 02:01AM ET
www.investing.com/analysis/weekly-sp-500-chartstorm-equal-weighted-strength-sentiment-vs-stock-exposure-200624668
Weekly S&P 500 ChartStorm: Equal Weighted Strength; Sentiment Vs. Stock Exposure
By Callum Thomas   |  May 22, 2022 02:01AM ET
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This week: risk-driver check, equal weighted strength, no capitulation, sentiment vs allocations, drawdowns and IPOs, commodity producer cash, rotation and bubble bursts, value vs growth value...

Welcome to the Weekly S&P 500 #ChartStorm—a selection of 10 charts which I hand pick from around the web and post on Twitter.

These charts focus on the S&P 500 (US equities); and the various forces and factors that influence the outlook—with the aim of bringing insight and perspective.

1. Correction-Drivers Update:

  • iShares MSCI Poland ETF (NYSE:EPOL) (geopolitics proxy): up off the lows
  • iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD) (credit/rates): bottoming?
  • ARK Innovation ETF (NYSE:ARKK) (tech burst): stopped making new lows (for now), follows -73% drawdown

Overall, the fact that these things have stopped going down (in contrast to the market as a whole) is probably a positive short-term sign. But it is still early days, and technically those 3 lines are still going down (lower lows and lower highs). As noted previously, bear markets don’t go down in a straight line—indeed, bear market rallies are common feature. I think these 3 are worth watching in that respect.

SPX:EPOL:LQD:ARKK Daily Chart
SPX:EPOL:LQD:ARKK Daily Chart

Source: @Callum_Thomas

2. Strength or Weakness? The equal-weighted S&P 500 is breaking out vs the cap-weighted index, and this follows a confirmed higher low. My first impression on this is that it says less about the prospects for the market as a whole and more about the powerful rotations underway below the surface—but more on that later.

RSP vs SPX Chart
RSP vs SPX Chart

Source: @adaptiv

3. "Not there yet..." As I've highlighted a few times before (and check the next chart), we are far from bearish capitulation. There is still a lot of denial, and why not? We've been taught for years that the Fed has our back (but not now, not anymore, the game has changed).

S&P 500 52-Week New Highs
S&P 500 52-Week New Highs

Source: @saxena_puru

4. "VTI and Chill?" (google that)

Despite extreme pessimism across numerous economic and market sentiment indicators, investors have not really done much in the way of actively pulling back on equity exposure. Some might argue this is the next shoe to drop…

Sentiment vs Exposure
Sentiment vs Exposure

Source: @WillieDelwiche via @TihoBrkan

5. Catching Down: Wall Street strategists are busily catching down to the market with their year end price target forecasts... I never understood why people bother with price targets, but that’s just me, I hate forecasts—I try to avoid imposing my biases on the market and would rather just focus on the facts and adapt: let that guide me vs trying to dream up some scenario. But anyway, it sure does seem that collectively strategists’ opinions are changing as the market facts are changing.

S&P 500 Forecasts
S&P 500 Forecasts

Source: @LizAnnSonders

6. "What's the worst that can happen?"

the worst:

Tech Stocks Performance
Tech Stocks Performance

Source: @chartrdaily via @ritholtz

7. IPO Market Drawdowns: After the IPO frenzy of the past couple of years, now comes the IPO frustration...

IPO Drawdowns Since 1994
IPO Drawdowns Since 1994

Source: @bespokeinvest

8. Commodity Cash: Commodity producers seem to be relatively more focused on returning cash to shareholders than investing in new production.

Maybe they see the commodity price shock as temporary, or maybe we all just made it too hard to invest in new supply...

CAPEX vs Dividend + Buybacks
CAPEX vs Dividend + Buybacks

Source: @TaviCosta

9. Bubble-Bursting Bear-Market: The same hot stocks that were the drivers of strength on the way up are now drivers of weakness on the way down. Funny that.

Bear Market - Momentum/Growth Cycles
Bear Market - Momentum/Growth Cycles

Source: @topdowncharts

10. Growth vs Value: “Growth stock beatings will continue until valuation morale improves.”

Looks like there is a LOT of gas left in the tank for value vs growth rotation. I like to say: valuation speak loudly at extremes (and over the longer-term).

Growth Valuations
Growth Valuations

Source: @CliffordAsness via @FT

BONUS CHART >> got to include a goody for the goodies who subscribed.

Stocks vs Bonds: Here’s what it looks like if you compare the very well known “S&P 500 Index“ with the S&P 500 …*bond* Index (which tracks the performance of corporate debt issued by S&P 500 constituents).

From first glance, after almost doubling from the low point in March 2020, the S&P 500 stock/bond ratio now looks to be peaking.

S&P 500 Equity vs Bond Indexes
S&P 500 Equity vs Bond Indexes

Interestingly enough, up until about mid-April, stocks had actually been outperforming bonds (at that point the stock/bond ratio was up 6% for the year).

That might come as a surprise given the way the stock market has traveled this year, but it was one of those situations where both were down — it’s just one was down less than the other!

At this point (as of Friday 20 May 2022), the S&P 500 itself is down -18.7% YTD, whereas its corporate bond counterpart is “only“ down -12.3%.

For what it’s worth, just about every chart and indicator I track for the stock/bond ratio is pointing to stocks lagging behind bonds in the coming months.

This chart (and the observations above) is perhaps as important for thinking about the stock market as it is for thinking about the bond market…

Weekly S&P 500 ChartStorm: Equal Weighted Strength; Sentiment Vs. Stock Exposure
 

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Weekly S&P 500 ChartStorm: Equal Weighted Strength; Sentiment Vs. Stock Exposure

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Comments (3)
THOMAS WHITE
TradeRunner64 May 22, 2022 9:11PM ET
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These charts and "comparisons" are both excellent and relevant to the current circumstances and months of market price action to come.  That said, the market will  fluctuate enough to give both bears and bulls opportunities to make money.  Personally, I like to sell short the rips when they come during any given day.  The big boy can see the little guys buy and sells.  Be assured, in each case, they want to scare you out and take your money.  The trick is being nimble and don't stay to long on any given trade.
Yiannis Lamprinos
Yiannis Lamprinos May 22, 2022 12:49PM ET
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Charts are nice and always make sense if you take into account all the correct variables. I think the main driver of this correction/bear market is the repricing or re-calculating of stock values due to interest rate rising and the effect this will have on the economy. When looking to the past for comparisons, we need to look for similar conditions and not just to any bear market catastrophe. IMHO
Devang Shah
Devang Shah May 22, 2022 10:45AM ET
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Any thoughts on how long bear markets last and its relationship with GDP?
victor Williams
victor Williams May 22, 2022 10:45AM ET
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hello
 
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