S&P500 Vulnerabilities: from Money Supply to Sectoral ImbalancesAs much as we try not to repeat ideas here, occasionally, an opportunity emerges to harp on the same point.
As we have previously laid out the bear case for the S&P 500 from a historical volatility behavior perspective, this week we will zoom in on other metrics showing why we think the S&P may struggle from here.
The first and most interesting measure, in our opinion, is the S&P 500 when adjusted by the money supply. Once again it appears to have peaked and is on the path of reversal now. The S&P500 / Money Supply has reached these levels not once, not twice but thrice, stopping at the same level before reversing. More importantly, overall, we see the S&P 500 clearly climbing up in line with the level of money supply.
Money supply has been on a decreasing trend since the start of the Federal Reserve hikes. While the downtrend has been paused momentarily with money supply slightly increasing in early 2023 it now seems to have resumed the downward path. This could spell bad news for equities given that the S&P has broadly followed money supply and the clear resistance observed on the S&P 500 / Money Supply chart.
As yields creep higher, investors will eventually second guess whether it still makes sense to put more into the equities when cash now yields more. The 6-month treasury yield is now higher than the S&P 500 earnings yield, a phenomenon not experienced since the turn of the millennium. A federal reserve resolute in keeping rates higher for longer might just be the kicker for investors to turn to these shorter dated treasuries while waiting out equity volatility.
With a series of better-than-expected economic data, the Federal Reserve once again gains greater headroom to maintain its higher for longer stance, which is causing discomfort in the equities market. All eyes will be on the Non-Farm Payrolls numbers coming out tomorrow for further confirmation if the US economy can indeed take this regime of higher rates.
Within the S&P 500, the Technology sector remains the significant outperformer compared to other sectors like Financial, Consumer Staples and Energy. With the Technology Sector / Financial Sector ratio extending far beyond the trend from 2017.
The combination of money supply metrics, yield comparisons, and sectoral imbalances, among other factors, makes a compelling case for a bearish outlook on the S&P 500. For investors seeking targeted strategies, CME E-MINI Select Sector Futures offers a refined approach, allowing for an overall bearish view on the S&P 500 while building positions in certain sectors through a relative value strategy. To express the bearish view on the technology sector relative to the financial sector, we can take a short position on the E-MINI Technology Select Sector Futures and a long position on the E-MINI Financial Select Sector Futures. Given the contract size differences, to roughly match the notional, we will need 3 E-MINI Financial Select Sector Futures at the current level of 405 to match 2 E-MINI Technology Select Sector Futures.
3 x E-MINI Financial Select Sector Futures Notional = 3 * 405 * 250 USD = $303,750
2 x E-MINI Technology Select Sector Futures Notional = 2 * 1678 * 100 USD = $335,600
Each 0.1 index point move in the E-MINI Technology Select Sector Futures is $10, while each 0.05 index point move in the E-MINI Financial Select Sector Futures is $12.5.
The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Disclaimer:
The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description.
Reference:
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Techology
Nasdaq Weekly Forecast 10-14 October 2022Nasdaq Weekly Forecast 10-14 October 2022
We can see that currently the volatility is around 5.08% for this week, falling from the 5.14% from the last week.
Currently there is around 23.6% that the asset is going to close either above or below the channel:
TOP 11636
BOT 10500
The current volatility percentile is around 90th, placing us in very risky environment. With this situations in general the market moves:
AVG weekly bull candle = 2.97%
AVG weekly bear candle = 3.6%
At the same time, there is currently a 75% that we will touch the high of previous weekly candle of 11729
and there is a 25% that we will touch the low of the previous week of 11067
From the technical analysis point of view:
The majority of moving averages ranging from 10 to 200, are currently around 80% agreement that the market is in a BEARISH trend ( the current price is below those moving averages)
Time to collect Malaysia Tech Stocks? 26/Jan/22Malaysia Tech Stocks Index may find its support near 75.75 which is the confluence strong support zone :- 1) Major Demand Zone (Cyan/light blue rectangle box region )... 2) Region/Zone of The Lower Support Line of the Major Parallel channel (Cyan/Light Blue)
$US100 IMO this is what driving the market to be "choppy". Imagined the NASDAQ is in a strong uptrend while RSI and MACD are consolidating on the top which could be a sign for "distribution". This market deserve an correction. #IMO #TAYOR #weeklychart
#PKARTLast year, #pkart started to rally in November and increased by 61% for exactly 3 months, then entered a correction period for 4 months and decreased by 21.41%. After the correction period, it again increased by 61% for 4 months and decreased by 21.41% in October. In the light of what has been mentioned above, price will reach the new peaks such as long term trend upper band which approximately 38-40 TL.
NOT AN INVESTMENT ADVICE.
Flag Pennant Breakout Giving $0.85c TargetHazer Group today broke out on light volume. The previous move (spurred by material news in regards to their graphite and hydrogen technology) of ~65% from $0.41 to $0.68 represents a move of $0.27 which gives this latest movement a target of $0.85. This also correlates with the historical all-time high.
Since the initial move the on 3/10/17 the previous price action has consolidated on declining volume indicating that sellers are done, the move to the upside confirms this.
With a HOA recently announced with ASX:MIN for the development of a battery grade graphite plant and a further MOU signed with Primetals for investigation of hydrogen refinement of iron ore there are several progressions possible which may act as catalysts in the near term.
“Hazer’s mission is to play a significant role across three multi-billion dollar global markets. Hazer’s technology can potentially provide an innovative solution for the global industrial hydrogen market, by producing hydrogen at lower cost than alternative options, while also reducing users’ CO2 footprint. The low-emissions associated with the Hazer Process also potentially provides a gateway for hydrogen to more effectively penetrate the sustainable energy market for both vehicle fuel and stationary power applications. Hazer is also looking to provide high quality synthetic graphite for energy storage and other large global graphite applications.”
www.hazergroup.com.au