To The Moon

Learnings and conclusions from this week’s charts: $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ(.IXIC)$ $Invesco QQQ Trust-ETF(QQQ)$ $Nasdaq100 Bull 3X ETF(TQQQ)$ $Nasdaq100 Bear 3X ETF(SQQQ)$ $NASDAQ 100(NDX)$ $DJIA(.DJI)$ $GLOBAL X DOW 30® COVERED CALL ETF(DJIA)$

• The S&P500 is sitting just above its 50-day moving average.

• A couple of short-term risk indicators are lighting up.

• US investors are running higher allocations to equities than usual.

• Gold may be just as good as bonds in the 60/40 portfolio.

• UK stocks are cheap, and folk are voting with their feet.

1. Testing Times

As geopolitical risk looms and higher-for-longer risk weighs, the S&P500 has slipped almost -3% off the high. The index has so far avoided breaking below its 50-day moving average, but as of Friday’s close 56% of individual stocks had broken below theirs (and chartists will note that the 50dma breadth indicator in the chart below has put in a bearish divergence signal — i.e. higher highs in the index vs lower highs in the indicator).

2. Apex Greed

I previously highlighted this chart — remarking (along with a few other examples) how euphoric and one-sided sentiment had become. In that respect, the optimistic take is the current bearish price action is just a “healthy correction” (clean out some of the excess speculative fervor).

3. Correlation Crunch

You’ve probably heard and maybe experienced that correlations go to 1 during a market crash (as investors switch from stock picking to sell everything). But the opposite tends to happen around market peaks: stocks become less correlated with each other, often one group is driving the market up, and maybe even some emerging weak spots see some stocks heading in opposite directions. But the key point is the crunch down in this indicator is a contrarian signal: an orange light on the traffic signals.

4. Risky Allocations

This chart is interesting for a couple of reasons. It shows investors now running the heaviest exposure to risk assets since the 2021 peak, but also despite all the gnashing of teeth and vocal bearish minority, investors as a group did not really swing heavily into “other” assets during the 2022 bear market (at least relative to historical weightings).

5. US Equity Culture

An interesting follow-on, US investors allocate 3x as much of their financial assets to equities than those in Europe/UK. Is this a culture thing? or is there something else to it… either way, all are toward the top end of their range.

6. Retail Round Trip

Likely thanks to sticking with those relatively high risk asset allocations, the typical retail portfolio has recovered back to its prior peak (after a traumatic -35% drawdown).

7. The 40 — bonds vs gold

This table shows return stats for the classic 60/40 portfolio if you used bonds or gold as the 40% (and stocks as the 60%). Not much of a difference, if anything gold had a slight edge.

8. UK vs US

UK stocks have exited from their previous relative value range to a very steep discount vs US. This sure looks like an opportunity, albeit one way people are acting on this is with UK companies reconsidering where best to list e.g. the largest stock Shell floating the idea of potentially switching its listing from London to New York. Given the valuation premium that US stocks trade at it probably makes more sense at least on a stock price and cost of equity capital basis.

9. UK Investors

And with such a steep discount for UK vs US stocks, what are UK investors doing? Of course they are… consistently exiting UK equity funds and piling into US equity funds (big tech/mag-7). So not only are UK companies pondering voting with their feet, but UK investors are too!

10. Where’d You Get Those Revenues From? 

Another one of relevance to the UK — UK stocks get 79% of their revenues from foreign countries. Probably adds further food for thought for companies that are effectively global but listed on a lower valuation exchange. Also interesting from the standpoint that the UK economy matters less for UK corporate earnings.

https://www.chartstorm.info/p/weekly-s-and-p500-chartstorm-14-april-f75