Always consider hidden risks
SP500 Index: Feel Home Alone?
July 5 2016 ( From TradingView )
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We just start to realize how deep the correction at the beginning of the year
was on the US equity market: On the low made on January 20 2016 at 181.02
on the SP500 Index (SPY ETF), even if few realize that the SPY ETF now
trade well above that level (209.92 as of July 1). (See first chart below)
Rebounding from those abyssmal technical levels was quite a statement
from Mr Market in January 2016 and February as a double bottom emerged
and since then we keep making Monthly higher highs and higher lows for
the Mighty SP500 Index. (See first chart below)
But few of us realize that the the post-Brexit panic was in fact an opportunity
for portfolio managers to rebalance at the end of month/quarter from cash
and bonds to stocks. Also,the relative flight to quality and liquidity was in
strong favor of US Equities.
All that is bringing back the big picture: observation is that the SP500
performance is way beyond valuation fundamentally and technically compare
to its peers domestically and internationally as market expect more Central Banks intervention.
Some technical indicators and statistics:
1) SPY ETF is at only 1.8% from its peak reached on May 20 2015.
( See first chart below )
2) SPY ETF is in fact far of testing the Daily Resistance Trendline that started back on May 2015.
( See first chart below - Thick Red Trendline )
3) SPY ETF closed on the Daily Resistance Trendline from a Downward Channel that started back on June 8 2016. (See first chart below - Downward Channel - Ellipse)
"To fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy's resistance without fighting."
-Sun Tzu, the Art of War
SP500 Index: Feel Home Alone? $SPY #investing #trading #SP500 #stocks #spy
Daily RATIO (Blue Line)
SP100 Index (OEF ETF)
SP500 Index (SPY ETF)
SP500 Index ( SPY ETF - Daily Candles )
Weekly RATIO ( Candles)
NYSE Composite Index
And as few of us realize is that market internals continue to deteriorate...
In fact, the top 100 stocks of the SP Index is under performing the Mighty SP500 Index since February 8 2016. Looking at the ratio of the SP100 Index (OEF ETF) over the SP500 Index (SPY ETF): triple top made at the October 2014 level. (See chart below - Red Trendline)
Another way to look at how expensive the SP500 Index is to compare to the old NYSE Composite Index;
let s take then the New York Stock Exchange Index compare to the Mighty SP500 Index on a ratio basis.
We are flirting with the Major Support Trendline that started back since in December 2000 as shown by the weekly chart below...
And also, valuations is at its limit when we take the relative price of the Global 100 Corporations (IOO ETF -iShares Global 100 ETF) with the top 100 in the USA - the SP100 Index (OEF ETF - iShares S&P 100 ETF).
We are at the lowest level since 2001 at near the support trendline from a falling wedge on the weekly ratio as shown by the chart below.
Weekly RATIO (Candles)
SP100 Global Index (IOO ETF)
SP100 US Index (OEF ETF)
Also many of us are totally ignoring the message sent by the International Financial Sector. As the worldwide economy is slowing and political uncertainties arising, Central Banks are pushing to the limit with negatives rates in Japan and Europe. That is becoming a major headwind as it is difficult for Foreign banks into that environment to make money as gross margin keep falling.
So taking the relative price of the International Financial Sector (IPF ETF -SPDR SP International Financial Sector ETF) with the top 100 in the USA - the SP100 Index (OEF ETF - iShares S&P 100 ETF).
Not only we are at the lowest level since 2008 on a relative basis but also in a breakdown mode form a weekly falling wedge as shown by the chart below.
Weekly RATIO (Candles)
SPDR S&P International Financial Sector (IPF ETF)
SP100 US Index (OEF ETF)
As the SKEW Index reached the biggest level ever on June 28 2016 (indicating the market was more than fully hedge with bear strategies - put options) and portfolio managers being long cash the most since 2001 (and mostly Allocations to US equities remain near their 8-year lows - Read: Fund Managers' Current Asset Allocation - June), all the planets were aligned to have a quite bullish end of the month/quarter rebalancing
into US Equities.
Now that most of the buying have been done, it makes the SP500 Index the richest stock index.
In Summary, we have now Generals that do not as most of the soldiers did better performance wise lately.... That was the full risk on phase... That tells me that Institutional Investors are selling when Retail Investors are buyring the stock market... Central Banks almost on a panic mode as Government Bond rates are collapsing worlwide and Financials getting crushed oversees makes me wonder why I should buy at those levels?
Only the Central Bankers hope to keep forever that faith on injecting liquidity will keep stocks into orbital spin and hope it will bring economic expansion is now a scary thought for me...