In Case You Missed It: Top Charts of the Week:

By Mark Masterson on July 28, 2023

It has been said “a picture is worth a thousand words.”  With that in mind, below below are a few of the most important or interesting charts from the past week…..

Charts from this past week:

Finally – it’s a very busy week of earnings from some of the major names.

You can see that this week has 48% of the S&P 500 reporting…..

Goldman Sachs 7 15 23

A few economic charts I saw and marked from last week.

The chart below shows that real gross domestic income year over year is now negative.

It has marked a recession every time……

Grey areas = recessions

NorthmanTrader.com 7 24 23

And another chart showing yield curve inversions and recessions for those who believe it will be different this time…..

This inversion is very deep.  The gray bars follow the inversions….

Yield curve inversions and recessions.  What do you expect to happen from here?

Bespoke.com 7 23 23

Finally, leading economic indicators last week were reported…..

US Leading Economic Indicators now -7.8% YoY, lower than expected and the 15th consecutive negative month.

Last negative streak this long was 2008.

Stephen Geiger 7 24 23

A look around sentiment to start the week……

Below chart shows that the stock market is very overbought relative to bonds historically…..

‘Stocks are very overbought relative to bonds.’ https://thedailyshot.com/2023/07/21/us-economy-will-expand-well-below-its-growth-potential/ via

@SoberLook

@Lvieweconomics

Longview Economics 7 23 23

Money is flowing to tech (yellow line) very aggressively.

I take note of the green line – which is energy. 

Its interesting that investors are selling energy while inflation starts to perk up again.

Energy still looks like an opportunity moving forward

Sector fund flows https://thedailyshot.com/2023/07/18/the-stock-market-signals-a-rebound-in-us-factory-activity/ via

@SoberLook

Deutshce Bank 7 22 23

About tech…….

Be very careful in tech.

I know – it’s a “no brainer.” 

Especially in the big 7

But…. This is the most stretched they have been over the 200 day moving average in 10 years as far as I can tell.

To me, this is screaming for a reversion move lower to close that distance. 

Notice how far down that blue line is from the current level…..It’s rare to get this stretched.

The CNN Fear and greed index is very stretched…..

Next Tuesday the market will have remained in an extreme greed state for an uninterrupted seven weeks. The chart of the S&P 500 is updated to reflect the relative peaks of both the CNN Fear & Greed Index, and the NAAIM Exposure Index. My interpretation is simple, participants are buying greed. 

@Tomthe trader 7 23 23

Everyone is in the pool today…..

Active managers had less than 20% exposure to equities last October when the S&P 500 was at 3,500.

Today their equity exposure has jumped above 99% with the S&P 500 above 4,500. This is the highest exposure since November 2021.

Charlie Bilello 7 24 23

The Sentiment trader smart money/dumb money index shows retail traders are the most optimistic they have been in a long, long time.

This is normally not a good sign for the stock rally.

Sentimenttrader.com 7 24 23

The Sentiment trader smart money/dumb money index shows retail traders are the most optimistic they have been in a long, long time.

This is normally not a good sign for the stock rally.

In fact, by the below measure – the Bloomberg Financial Conditions Index – conditions are as loos as they have been since 2021……

The #Fed might think they have tightened monetary #policy but financial conditions have been easing for months.

More work to do?

Richard Bernstein (RBA Advisors)  7 26 23

How about high yield debt?

Well – the spreads on US high-yield bonds are the lowest since April 2022.

This indicates again that financial conditions are loosening at a fairly steady clip, even as the Fed prepares to hike rates to the highest level since 2001.

It’s just a very strange environment.

Normally – you see high yield spreads widen as rates rise and stress builds in the economy.

Not today.

Again – I ask – more work to do?

Lize Ann Sonders/ Bloomberg 7 26 23

On the other hand – while the Fed keeps hiking rates – I continue to see signs a recession is in our future.  I know – its not the mainstream view.  Wall Street says we will have a soft landing.  We certainly may have a soft landing, but the data would suggest otherwise.

Below are a few new charts to the list I have highlighted the past few weeks…..

It appears that each and every time the 1 year treasury yield has spiked like it has this past year – the US did NOT have a soft landing.  In fact, it led to the Fed cutting rates aggressively.

Why should it be different this time?

Northmantrader.com 7 26 23

Despite the talk about how strong the consumer is – we see retail sales lower…..

Retail sales tracked by Johnson Redbook are down 0.4% year/year in most recent week … excluding COVID plunge, worst annual drop since 2009

Liz Ann Sonders 7 24 23

Industrial production chart suggests the US may already be in a recession…..

Hedgeye 7 26 23

Chart showing read Gross Domestic Income – which is now negative.

This has a 100% hit rate with predicting a recession.  That is 12 for 12 – when it goes negative, you see a recession, or are in a recession….

Oxbow Advisors 7 26 23

Interesting break from the normal trend below…..

You can see that forward P/E ratio’s follow the (inverted) chart of the real yield or 10 year TIPS.  It has been a very close relationship for a decade.

Yet – today the purple line has broken away as investors bid up stocks and expand the P/E while yields continue to rise/hold.

‘The S&P 500 PE ratio has diverged from real yields.’ https://thedailyshot.com/2023/07/25/service-sector-growth-is-slowing/… via

@SoberLook

The Daily Shot 7 26 23

Call buying is a sign of optimism and bullishness.  You buy a call and expect the stock to rise so it pays off.

Today – according to Macro Charts – investors are  “ALL-IN” buying Calls (chasing the rally).

Just another sign of extreme sentiment.

Macrocharts 7 26 23

What is so strange about this cycle is – as rates have risen, financial conditions have become more loose, not more tight.

I showed you yesterday in the Bloomberg Financial Conditions index that they are very loose today.

Below in red is the Chicago Fed national financial conditions index, and it too is lower today then when the Fed was early in the hiking cycle.  The blue is the Fed rate hikes since last April.

I’ve never seen that – and I don’t know how the Fed can justify it outside of Government spending at a massive pace is offsetting the impact of any tightening of rates thus far…..

Northman Trader.com 7 27 23

The US dollar is looking like it too wants to roll over again after the counter trend bounce that started last week.

A weaker dollar will certainly boost commodity prices.

Oil prices have clearly broken out from the downtrend that started last June.

The releases from the SPR have pushed prices down, but a weaker dollar, tighter supply from OPEC+ could combine for higher prices.

Remember, much of the lower CPI data came from lower energy prices.

The CRB (Broad Commodity Index) has clearly broken out from the downtrend that started last year.

When I step back and look at the CRB chart over the past 10 years – I think this is a beautiful chart and a beautiful breakout.

You can see the bottom in 2020 and the massive first rally out of those lows.

That rally peaked last June, and has been in a clear “bull flag” correction.

That looks to be ending – suggesting possible new highs for commodities

By the way, the Goldman Sachs commodity index has the same breakout look…..

As for stocks….the melt-up continues.

It has expanded back to the meme stocks over the past few months as retail investors pile into the more speculative parts of the market…..

Meme Index has been outperforming S&P 500 for third consecutive month, with July being strongest (thus far) since this past January

[Past performance is no guarantee of future results]

Liz Ann Sonders

Positioning is very extreme according to recommended exposure from market timing newsletters.

In fact, they are now more bullish than they were at the top of the internet bubble – recommending 80%+ in stocks.  Just another sentiment indicator for sure – but certainly extreme.

Market timers are more bullish now than at the top of the internet bubble https://marketwatch.com/story/market-timers-are-more-bullish-now-than-at-the-top-of-internet-bubble-777340b5… by

@MktwHulbert

Marketwatch/Jesse Felder 7 26 23

The higher the P/E – the better today.

High P/E stocks have beaten Low P/E stocks by more in the last 10 years than they did in the Tech bubble that ended in 2000.

Another peak over the tech bubble highs of 2000…….

Please note in the chart that the peaks in 1973, 2000, and 2020 did not end well.

Ken French Data Library 7 26 23

No fear in this market with the 30-day average of equity put/call ratio (from CBOE) hovering near lowest since April 2022 and near lower end of range going back a couple decades

Liz Ann Sonders 7 27 23

Moving away from stocks to real estate…..

A few interesting charts I saw this morning.

First – the drastic drop in housing inventories historically in a chart. New listings have absolutely fallen off a cliff.  Folks just don’t want to sell if they have a  3% mortgage.

The question is, if there are no transactions, how can so many realtors stay in business?

Stansberryreasearch 7 27 23

There appear to be 600,000 more realtors than homes for sale……….

NABR 7 26 27

You can see the white line ramping higher (government spending), while the yellow line stagnates (government income)

This is also not a recipe to tame inflation longer term by the way…..

Beartrapreports/ Lawrence McDonald 7 27 23

Yesterday saw the 10 year treasury bond yield jump higher to the 4% level.

This chart does look like it wants to push higher after breaking out of the channel.  It needs to be watched as higher yields should prove to be a headwind to the economy and markets.

The reversal in equities yesterday comes from pretty extreme sentiment and overbought conditions.

The S&P is stretched far above the 200 day moving average, and the RSI (at the top with red arrow) and the stochastics at the bottom are both pinned at overbought.

It’s a good time (according to this chart) for the stock market rally to take a breather.

Sentiment…

Active managers had less than 20% exposure to equities last October when the S&P 500 was at 3,500.  

Today their equity exposure has jumped above 100% (leveraged long) with the S&P 500 above 4,500. This is the highest exposure since November 2021.

Clearly everyone is in the pool at this point

Charlie Bilello 7 27 23

And…..The AAII bullish sentiment reading is a bit hot I would say…..

Highest monthly bullish AAII sentiment reading since the end of 2017.

Northmantrader.com 7 28 23