In Case You Missed It: Charts of the Week

By Mark Masterson on July 29, 2022

It has been said “a picture is worth a thousand words.” 

With that in mind, the following are the most important or interesting charts (with commentary) from the past week…..

Charts from this past week:

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I saw a chart like this that showed the S&P 500 during the bear market run from 2000 to 2003.

You can see that it stayed below the 200 day moving average the entire time – but made some solid runs back up to it.

Finally – it broke above and that was the end of the bear.

Seems like that 200 day is a good test to signal the bear is over – once the market breaks above, and holds above.

Here is today’s S&P 500 and the 200 day….

You can see the impact of massive fiscal and monetary stimulus and support over the past 10 years on stocks.

There is a basic reality that asset growth should track #economic growth and #sales since that is where #valuations track.

Large deviations historically end poorly.

The market (orange) is massively disconnected from GDP (purple) and sales (blue). 

So – the question is this….  Will the Fed be able tighten too far given this large disconnect?  Answer:  I doubt it.

Gold has struggled over the past two months.

Sometimes it’s a good idea to step back and look at the big picture.

Below is gold and its 200 week moving average.  (similar to what I did yesterday with the S&P 500)

This chart looks just fine.

During the long bull market of the early 2000’s, it stayed above the 200 week.

During the 5 year bear it fell below the 200 and never could stick above it until 2018.

It broke back above in 2019 and has stayed above.  It has just moved back to the 200 week on this frustrating sideways move – but still looks fine.

It is now deeply oversold on the weekly charts which does often lead to a rally.

The positioning in gold is also bullish.

Fir the first time since 2019 futures positioning is negative.  Blue line is the gold price.

Again – could signal a rally is due soon.

The dollar has turned lower over the past week.  That has helped fuel a bounce in equities.

The red arrow is where I posted the below chart.  It was overbought.  As expected (and hoped) it has turned lower.

Its not quite oversold, so we could have some room to move lower.

But – the Fed may have a lot to say about the direction of the dollar…..

I see lots of talk on how bearish everyone is on stocks.

Yet – investors still hold their overweight to stocks.

And – the Sentimenttrader smart money/dumb money index is back to neutral as well.

The red line below is the dumb money. (retail)  It is well off the bearish lows and back to neutral.

So – nothing concrete here on Fed day.  It could go higher or lower (dumb money) from here.

I have been watching the VIX.

I put it in our video commentary.

Its back at the lower range of what looks like a large rounded bottom.

That offers the potential for a VIX spike higher – which would suggest potential for a market sell-off.

A few charts I saw on real estate……

The housing bubble continues to inflate with US home prices hitting a record high in May for the 40th month in a row.

Prices have increased 20% over the last year and 40% over the last 2 years.

The gap between US home prices and wages continues to widen. That worked fine when mortgage rates were 2.5%, but not anymore.

Chart below shows the Fed balance sheet in blue.

The different colored lines are the projected balance sheet reductions at that particular time.

Well – you can see that – each and every time the Fed planned to reduce the balance sheet – they never did, and never could.  Why?  Because the market and economy revolted, forcing the Fed to continue QE.

Will this time (the gold line at the end) be different?

Hat tip to Hedgeye this morning for the data.

Below shows the current bear market.

The 2022 version is in blue.  As you can see, so far it is much shorter than the 2000 and 2008 bear markets – which were much larger.

Yet, the volatility is similar.

Big drawdowns, and big /sharp rallies.

For the current market the average up move is +9% and the average down move is -12%.

For 2000 the average up move was +15% and the average down move was -18%.

For 2008 the average up move was +12% and the average down move was -19%.

The largest bear market bounce in our current market is +11%

In 2008 +23%, and in 2000 +21%.

Our current max bear market bounce (+11%) is lower than the average bounces in 2000 and 2008

Hedgeye

So that is interesting.

But – is 2000 and 2008 the best comparison to 2022?  Hard to say.

Back in 1969, 1975, and 1981 inflation was surging, while the Fed Funds rate was rising.  (like today) 

The Fed Funds rate during 1969 stopped accelerating in Sep 1969.  What did the market do?  The market bottomed in Jun 1970, 9 months later and a -25% drop later.

During 1975 the fed funds rate stopped accelerating in Jul 1974, the market bottomed in Oct 1974, 3 months later and a -26% drop later.

During 1981 the fed funds rate stopped accelerating on Jul 1981, the market bottomed in Aug 1982, 13 months later and a -21% drop later.

So – that was clearly a more challenging market environment – with more complex dynamics of Fed hiking rates, inflation rising, and market volatility – more like today.

Below is the market, Fed Funds rate, and inflation (CPI) from 54 – 85.

Hedgeye

Even Jim Cramer is now bullish.  (Uh oh)

Here is his quote…..  “When the #Fed gets out of the way, you have a real window and you’ve got to jump through it. When a #recession comes, the Fed has the good sense to stop raising rates, and that pause means you’ve got to #buy #stocks.”

Take a look at this chart.

It seems to suggest the opposite.  A Fed pivot seems to come right before more volatile markets.