Okay, now it looks like the election is over and over, we’re forever taking a look at « Where’s next? »
In focus, there is positive seasonality, the tendency for stock flows to ramp up beyond removal of uncertainty about elections, and incentive speculation.
Also on the cards this week, there’s a look at the increased underwriting activity (especially in SPACs)
Those who follow my personal Twitter account will be familiar with my weekly S&P 500 #ChartStorm as I pick 10 charts on my S&P 500 for tweets I will usually pick a couple of themes to explore with charts, but sometimes it’s just a selection of charts That will add to your point of view and help form your view – be it bearish, bullish, or anything else!
The purpose of this note is to add additional context and color.It should be noted that the goal of #ChartStorm is not necessarily to get to a specific point of view but to highlight diagrams and topics worthy of attention but definitely if you observe the graphs it tends to help with narration The story, as you’ll see below
1 Where next for the S&P 500? Here are some helpful lines to help frame risk and incentives management: Leaves us at another moment of success or breakdown A lot has happened in the past two months. Just last week, we received the ISM industrial report for October, the US elections, the FOMC decision, and the October jobs report. Stocks fell sharply in the week before the election to offset those losses (and some) over the past five trading days.
However, taking a step back, we see that the S&P 500 has held together over the past two months. The file pattern was developed last week’s settlement above 3500 indicates the upper end while the 3250 represents a support level and the question we have to think about is, “Do stocks break out. Here? » Or will last week’s profit taking lead to a decline in stocks and continue to consolidate? It’s always important to watch the momentum on S&P 500 – RSI (14) has breached the downtrend resistance line from the September high, so the bulls have it Overall, Friday’s price action was indecision and pause for the rapid advance from the 3234 low from October 30th
The bottom line: S&P 500 managed to maintain its lowest level in September through October’s downturn, leading to the best election week performance since 1932. Price action has not been very different from how it traded in the 2016 election. Are we seeing a repeat of optimism until End of the year this time? The bulls could cut short for them given the current resistance level and the September / October peaks just above the current price
2 There is one thing in favor of moving upward: Seasonality RyanDetrick is already suggesting that further gains may be achieved through the end of the year This chart from LPL Research shows that the November – December period of election years has typically been characterized by respectable and consistent gains since 1950. For all years, average earnings in the last two months of the year are 1-2%, although December has been somewhat weaker in the past 10 and 20 years
Election years follow the same general pattern. Seasonality is best used as a secondary indicator of price action, but it is important to acknowledge that the stock market has entered a strong portion of the year. The time frame from November to April is known to feature most of the annual returns dating back to 1950. – There are many studies on this trend
Of course, any year can be its animal (see 2020) This year, stocks have posted massive gains during the usually weak period of May to October with two decent pullbacks in our rearview mirror (September’s drop was 1055% while it was October 89%, from intraday high to low) weak hands may have been shaken, allowing more upside to end the year
The bottom line: Last week removed a lot of uncertainty the bulls are feeling good about themselves, and now they have strong seasonal trends in their corner amid the change of guardianship in the White House and the spike in COVID-19 cases in Europe and the United States, stocks rose dramatically (I’m not sure Than we can say big anymore) and now look to break all-time highs during what is often the bullish part of the calendar
3 Is this infographic a crime or a sublime plot? Bitcoin makes him rest so the weird / bogus relationship with S&P 500 is definitely in focus Can you believe it has been three years since Bitcoin saw its equivalent massive bullish move? 2017 was simpler – the stock market seemed to go up every day without volatility, there was no COVID-19, and families across America were chatting bitcoin on their Thanksgiving table
Bitcoin advanced from $ 740 in early 2017 to $ 19,870 in December of that year and then saw a nearly 85% decline over the next twelve months. A successful test of the bottom finally occurred in March 2020, helping to spark another impressive rally in The past eight months Interestingly, and we may be guilty of chart crime here, Bitcoin and S&P 500 appear to be bound in 2020
While no one in their right mind is complaining of a 117% year-to-date gain (while SPX is only up 9%), some investors prefer owning bitcoin for the sake of diversification benefits. The cryptocurrency seems to be just another fraught asset. Risks (possibly on steroids) no matter how well Bitcoin fit in your wallet, the chart saw a bullish breakout earlier this year when it went from $ 9,000 to $ 12,000. We’ve seen massive fluctuations in this area before, and it’s growing again in Last week, it came close to $ 16,000, so all-time highs loom.
Conclusion: You will feel like in the good old days when you hear family members make big hits in bitcoin during holiday get-togethers (even if only via Zoom) the main cryptocurrency rose by more than 100% in 2020 after suffering from the hustle and bustle of the past three years helped The breakout during July is fueling the rally and interestingly, it appears that Bitcoin and S&P 500 have been correlated over the past 12 months if stocks rise, it could mean that Bitcoin could push at an all-time high near $ 20,000
4 The price of S&P 500 in Bitcoin Let’s have some fun with Bitcoin instead of its price in USD, let’s price S&P 500 in terms of Bitcoin The ratio of SPX to BTC is roughly 02x today, but back to early 2011 when Bitcoin was a few dollars Only, and the ratio was well above 100x technicians can look at this chart and conclude that the bigger trend is lower The descending triangle pattern has been developed in the past several years, but this appears to have collapsed during the back half of 2020 (which is an uptrend for Bitcoin. For S&P 500)
Are new bottoms on the horizon? Will the bottom hold up in early 2017? These questions can soon be answered. The implication is that Bitcoin is outperforming US stocks. There was a similar pattern in 2013 until 2015 when Bitcoin performed below SPX, but this was just a corrective move within the broader trend not long ago. Bitcoin will continue to rise compared to US stocks
Conclusion: Bitcoin often features great chart setups for technicians to be excited about. Not only did the major bullish breakout happen earlier this year, but we might be close to an important juncture on the SPX price chart for Bitcoin. The clear trend is lower in the chart below. , Which means that the performance of US stocks has been sharply lower than the performance of Bitcoin in the past ten years and over the past few months. This does not mean that stocks will collapse from here, but rather that the bitcoin currency can be prepared for stronger relative gains
5 CNN Money Fear & Greed After a Short Reset: Now Midway Switch from Bitcoin to Stock Market Sentiment Investors were more ambiguous at the height of early September when tech giant stocks were on fire. The September correction knocked the wind out of the bulls’ sails, but then stocks rebounded in mid-October however, another drop, nearly 10%, before the election week of sentiment. As measured by CNN’s & & greed index, it reached its lowest level and reached its weakest point since April
The drop of 9% to a peak from the low on October 30 pushed the sentiment index up slightly to 40. CNN announced that 40 points remain within the « fear » zone even though stocks are not far from their all-time highs A year ago it was 91 in the range of « extreme greed »
So why fear? (1) Breadth remains weak as &’s small value stocks slow down, (2) strength in safe-haven bond assets undermines movement in risky stocks, (3) CBO buying ratio remains in bearish activity, and (4) Finally, the number The 52-week high is not too high given where the index is currently trading in. The bullish factors that define the Fear & Greed indicator consist of (1) market momentum as the S&P 500 is more than 7% above the 125 day moving average and ( 2) Demand for unwanted bonds is very strong
The bottom line: Bulls want to see supply improve and money move away from safe play While it is great for leaders to take the lead, it is not usually ideal for other areas of the stock market to decline. « Rotation » is an overused term, but that’s exactly it. What the Bulls want to see As we approach the end of the year if a positive turnover occurs, the Fear & Greed will shift from the zone of fear to the zone of greed
6 Individual investors think there is a high likelihood of a meltdown. @ rjparkerjr09 brings us a chart from Dr. Schiller Research at Yale University MarketWatch published a story about the position of investors regarding the expectation of a huge crash in the stock market. This sounds exciting, right? Let’s dig deeper into the latest reading (September 2020) of the U Crash Confidence Index is 24% for US institutional investors and 15% for US retail investors
So what does that mean? The survey asks investors what they think is the likelihood of a stock market crash similar to what happened in October 1929 and October 1987 in the next six months. A 0% response indicates that it cannot happen, 100% means that it is certain to have a crash Confidence Index is the percentage of respondents who They think the likelihood is less than 10%.
The currently low reading of the chart means that more individual investors believe a meltdown is likely because only 15% of respondents believe the chance of a meltdown is less than 10%. The data indicates fear from last September. Schiller has been conducting this poll since the crash of 1987 as a way to demonstrate The importance of past market accidents and their impact on stock market performance expectations Interestingly, when the fear of a crash is in the top 10% of historical readings (as it is now), the average true total return of S&P 500 over the twelve and 24 months Next is 24% and 46% respectively
Conclusion: Investors have been tending to be more fearful since the March lows in stocks – at least when asked what they think the chances of another stock market crash seem strange given stocks rose in that timeframe, but it appears to be in progress. Stocks, investors are becoming more fearful of a possible fall in another shoe This pessimism is considered bullish for the S&P 500 over the next 12 and 24 months (as of September) according to Dr. Schiller search
7 The number of companies in S&P 500 with negative stocks is approaching an all-time high RadicalAdem shifts gears from sentiment to the balance sheet of S&P 500 companies The number of companies whose liabilities exceeds assets is approaching an all-time high This is a data point for bears to lick their pieces. Record low borrowing and intangible asset growth to an explosion of « negative equity » companies
If a prolonged downturn occurs in the economy, it could mean very bad things for US companies due to the state of many high-term leverage companies ’balance sheets are also high. If interest rates rise at any point, it could lead to the doom of companies that depend on debt to finance Its operations
You’ll notice in the chart below that the past seven years have seen a marked increase in the number of negative equity firms – and this happens to be the same time frame as interest rates fell sharply in late 2013, the yield for 10 years was 3%, after It rose from a 2012 low of 14% and another rise came when rates fell again from 325% in 2018 to this year’s range from 05% to 09%. The high duration and intangible asset growth should make the bulls uncomfortable.
Bottom line: While the popular narrative on Wall Street is that corporate balance sheets are better than they have been in recent years, the number of negative equity firms calls into question the record low interest rates and the incentive to buy back shares (to reduce the relatively costly portion of Capital structure) to high standard liability values relative to the assets we may be on borrowed time
8 On a related note, the number of companies that take part in an IPO with negative earnings is similarly close to an all-time high. Not surprisingly, the profitability of public companies is low. The year 2020 saw a boom in IPO activity and SPAC, and stocks that have achieved It went public with good performance in terms of market performance
This year was a bit reminiscent of the late 1990s with several IPOs and many of the companies mentioned are not profitable – as we saw in 1999 and 2000 of course, the dotcom bubble burst in March 2000, helping dry up the IPO market in the following years. Another feature of the post-dotcom bubble of the 2000s is that companies that went public did so with better profitability.
The ebb and flow are coming and going, and we’re back to a period of negative IPOs. This could be a sign of frustration, and IPOs could be another area of the financial world that could be hit hard by the economic downturn.
The bottom line: The IPO market has been increasing in terms of irrational abundance. The number of companies that have been IPO has been increasing this year and so have the number of companies doing so without profit.
9 SPAC-fever has ruined my IPO charts (Maybe I should start SPAC to buy new IPO charts!) This graph shows just how active the IPO market is this year. Applications to public have been the highest since at least 2007 Like many graphs this year, the y-axis had to be greatly expanded
Blaming SPACs (Special Purpose Acquisition Companies) SPACs are entities that have no commercial operations – they are rigidly created to raise capital through an IPO to buy another company SPAC could be a faster IPO process versus the traditional IPO route seeking Private capital into placement of money, and SPACs have been one of the primary vehicles for doing so this year The trend will likely continue into 2020 except for a major market event
The bottom line: While investor sentiment is scary, the IPO and SPAC markets are the hottest in 20 years Institutional money wants to move quickly in terms of companies going public and at the same time, the IPO performance is also very strong this year – Index: The IPO has increased 66% since the start of the year (compared to SPX) making it the best performing equity factor in 2020
10 Long-Term Perspectives on IPO Size topdowncharts concludes this week’s ChartStorm chart with a look at initial public offerings since 1960 Here’s a chart to put the IPO market in perspective The past few months have already seen the largest number of initial public offerings dating back to Dotcom Era The 1980s high flying also had some glory days, before the crash in 1987
Continuing to travel through time, the turbulent period from the mid-1970s to the late 1970s was not a time for an IPO amid rising inflation and precarious economic growth Note that every rise in initial public offering activity coincides somewhat with a peak in S&P 500 Investors should be on guard Prepare for other signs to appear at the top of the market, but the massive rally in corporate IPOs is a data point for the bears by their side indicating that investors are getting too excited
The bottom line: If you’re not sure you’re entering the market in the IPO boom, here’s your monthly mark. There have been more IPOs than at any other time in over 20 years SPACs are fueling the boom as private capital seeks to speed up the IPO process Public stocks in this world of record low interest rates and strong support from the Federal Reserve Bears see this chart and tweet, « Maybe this isn’t going to end well. »
2020 did not bring us any shortage of interesting topics and charts. The collapse of COVID reached 34% to its lowest level on March 23, then stocks recorded one of the fastest recoveries in history. However, the past two months have been a period of consolidation with lower highs and lows. Higher levels since early September The S&P 500 is now trading at an important crossroads – are stocks breaking out to new highs or dropping again within the consolidation range? Seasonality indicates that an upward move is the most likely move. Stocks tend to perform well during November and December, especially after the elections. Investors are still fearful of a possible market crash, so this could mean a continuation of climbing the wall of anxiety.
It is the shadows of 2017 When examining the performance of Bitcoin this year, the main cryptocurrency rose by more than 100% during the year 2020 Since Bitcoin became prevalent several years ago, Bitcoin has generally surpassed stocks, but it has also gone through its growing pains with operations. Sharp pulls along the way Bitcoin broke out earlier this year and could reach all-time highs and interestingly enough it traded on a good relationship with S&P 500
While bitcoin can be a sign of a decent investor’s willingness to take risks, corporate balance sheets are becoming more effective The number of negative equity firms in S&P 500 has reached its highest level in more than 25 years Low interest rates and the relatively prohibitive cost of equity have created Interesting incentives for CFOs Along the same lines, the significant increase in IPO and SPAC activity this year shows that private capital wants to move quickly to bring companies to the public – it’s almost as if the 1990s in the IPO world. These are definitely signs of foaming and possibly excessive gambling when exactly the party is over anyone’s bet – keeping up with major macro trends and changes in data is more important than ever
The election has come and gone. We can all take a deep breath and enjoy all the certainty we have right now Yes right – investors remain uncomfortable as stocks approach all-time highs It’s an interesting juxtaposition while volatility has eased a week ago, the VIX is in the mid-twenties no Still above the long-term average, so expect significant daily fluctuations to continue, the bulls want to see increased participation in the bullish move while bears see resistance on the S&P 500 chart after election week bounce but as mentioned earlier, the usual pattern is beyond The election is a windfall: equity flows are back and we have year-end seasonality so let’s see what happens.
Disclosure: I / We do not have any deals in any of the mentioned stocks, and we do not have any plans to start any deals within the next 72 hours. I wrote this article myself and it expresses my own views. I do not receive compensation for that. I do not have any business relationship with Any company whose shares are mentioned in this article
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