As noted yesterday, the S&P 500 successfully cleared technical resistance and the 250-day moving Volume Weighted Average Price (VWAP) of ~$298 for the SPY (SPDR ETF), a level (give or take ~2%) that typically leads to increased buying interest from systematic strategies.
With the SPX now through 3000, it makes sense to focus even more attention on internal signals in sector and cross market divergences. The years-long disinflation cycle has pushed two highly cyclical sectors (Materials and Energy) into the ‘value’ style along with Financials that rely
The cyclical/value rotation from last August and September was based on rising expectations for above-trend global growth. The catalyst was a Fed-led monetary easing cycle over the prior six months as an offset to trade-related headwinds. It was actually the easing cycle and rising expectations
The S&P 500 is currently trading above key technical resistance at ~2950, above its 200-day Moving Average and above some popular CTA triggers levels…intraday. Cyclical sector outperformance is also an encouraging internal development this morning, but the close matters most. Sustained closing levels north of
US equities mostly lower with the S&P 500 still on track for a +2.5% weekly gain. Bond proxies and defensive groups advance this morning, while cyclically-sensitive Energy, Financials, Industrials and Materials come for sale after 5 straight days of leadership. Treasury yields are lower with
Yesterday’s release of the most recent Fed meeting minutes confirmed our expectations that QE purchases will conveniently match Treasury bond issuance. The four-session-long bond yield back-up and curve steepening trend paused today in an apparent acknowledgement that Fed officials have Treasury bond issuance (to pay
Curve steepening is helping cyclical and ‘value’ sectors outperform for a third straight session. Rally attempts based on cyclical sector leadership are considered more sustainable that those based on defensive sector leadership.
The S&P 500 low on 3/23 was preceded by a record high in the CBOE equity put/call ratio on 3/12. The CBOE equity put/call ratio is a daily number that reflects sentiment in a highly emotional investor class and used as a contrarian indicator.
The WSJ’s Greg Ip noted some high frequency data that points to early signs of a US recovery: 1) map requests on Apple have been on a steady climb since the week ending April 9; 2) retail visits have improved from -50% year-over-year in mid-April
Equity prices definitely adjust based on real-time developments. And equities do become overvalued, disconnected from reality and vulnerable to significant corrections. But that happens when sentiment is at bullish extremes, when equity positioning is stretched and when financial conditions are tightening.
