Weekly S&P500 ChartStorm - 22 May 2022

The Weekly S&P500 ChartStorm is a selection of 10 charts that I handpick from around the web and post on Twitter. The purpose of this post is to add extra colour 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...

1. Correction-drivers update:

-EPOL (geopolitics proxy): up off the lows

-LQD (credit/rates): bottoming?

-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 three 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 a common feature. I think these three are worth watching in that respect.

2. Strength or weakness? The equal-weighted S&P 500 is breaking out versus the cap-weighted index, and this follows a confirmed higher low. My first impression of 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.

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

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…

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.

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

the worst:

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

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...

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.

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).

Thanks for reading!

Callum Thomas

Founder and Head of Research at Topdown Charts

Any feedback, questions and views are welcome in the comment section below.