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

By Mark Masterson on April 19, 2024

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

Below in the charts I look at a few assets that appear to be tired…..

Yet – keep in mind that in an election year – markets have an upward bias.

Since 1952, the S&P 500 has finished each presidential election year in the green except three times.

Each of those was an open election without an incumbent running.

So – while I’d expect more volatility in the market – ultimately markets resolve to the upside in election years.

Strategas 4 15 24

A few tired looking charts…..

Many assets have been on the move.  As of Friday – a few of this years winners may need to take a break based on the charts.

First – the chart of gold.

I highlighted why gold will likely do quite well this year.  However, it is very overbought, and had a large reversal on Friday from higher to lower.

Often – candles on the chart like the one I circled indicate it is ready to take a break.

I would not be surprised to see gold pause and correct for several weeks to work off the recent sentiment.

Even stocks look a little tired.

The rising wedge I highlighted in the video commentary did break to the downside.

Stocks are a bit oversold in the short term – but it would not shock me to see more downside volatility in the coming weeks….

Why?

Well, unfortunately the chart of the dollar does not look tired yet.

It burst higher last week.  Yes, it is reaching overbought – but it may want to push a bit higher still.

We need the dollar down to ease some pressures on various markets/assets….

Bond yields are also rising.

Below is the 10 year treasury yield.

High yields mean lower bond prices.  If bonds keep falling and yields rising, it also can create pressure on various assets and make it difficult for markets to move higher.

It will be interesting to see if Powell addresses inflation.  As we know, recent data has been trending higher.

In fact, US CPI inflation is on track to hit 4.8% by the 2024 election, according to Bank of America. 

Over the last 3 months, CPI inflation has averaged 0.4% on a month-over-month basis.

If this trend continues it puts year-over-year inflation on pace to hit 4.8% by November, its highest since April 2023.

That would be more than DOUBLE the Fed’s 2%  inflation target.

Inflation has been above the Fed’s 2% long-term target for 37 straight months.

I suspect that is difficult for Powell to ignore.  Yet – Powell and other Fed speakers have said they do intend to cut rates at some point this year.

Bank of America 4 16 24

Equity markets have been bumpy. 

In the video commentary -and yesterday in the Morning Roundup – I highlighted how it needed to pull back from the rising wedge.

Sentiment has been too hot as well – calling for a pause in the rally – or even a correction.

Then – I see this from Bank of America…..Latest BofA survey says investors most bullish in more than two years:

• BofA’s latest Global Fund Manager Survey said investors most bullish since Jan-22, noting the biggest increase in growth optimism in nearly two years.
• Report said more investors on net expect global growth to accelerate over next 12 months for first time since Dec-21, and most optimistic on profit outlook since Aug-21.
• While investors increasingly bullish, some strategists increasingly cautious, with JPMorgan this week saying investors more optimistic than earnings projections and flagging very stretched positioning (Bloomberg).

That is an unwelcomed stat from my perspective.  A correction should reset sentiment – and that has not happened yet.

In addition, I saw this……Asset managers now hold a record $250 billion net long in S&P 500 futures.

• This is almost $50 billion more than in the 2021 peak and $60 billion more than in the early 2020 top.
• Since October 2023, net longs have increased by more than $100 billion, or almost 80%.

So, asset managers are very exposed/long to the market here.

Kobeissi Letter/  Goldman Sachs 4 16 24

The market is getting very oversold here.  That is a positive, and would certainly call for a bounce soon.

The McClellan Oscillator is very oversold now.  As you can see below, when it reaches these levels, the market rallies.

I love the below chart showing how undervalued energy stocks are compared to the S&P 500 tech.  It appears they take turns at leadership and it may be energy’s turn.

1990-2000: Tech stocks

2000-2008: Energy stocks

2008-2020: Tech stocks

Since Sept. 2020: Energy stocks

Jeff Weniger 4 15 24

Sentiment can be measure a few ways.  There are the normal sentiment gauges we track.  Another indicator is where and how investors are allocating their capital.

The below chart suggests sentiment may be a bit too high in oil right now. 

Brent Crude Oil Call Options Volume hit an all-time high of ~350,000 contracts on Monday

With call option activity so high, it shows that investors are betting big that oil goes up.

When we see extremes, often the opposite happens.  In other words, the most people tend to invest toward the end of a move, not at the beginning.  (in both directions)

I put the below chart in the column that tells me oil may need a rest.

Bloomberg/Goldman Sachs 4 18 24

Same for the below…..

Commodities saw their largest monthly allocation increase in history.

I really don’t like this – even though I believe commodities and real assets will out perform in the coming years.

This suggests that commodity markets may also need a rest.

Bank of America 4 18 24

Surprising data out of corporate insiders.

It looks like no one wants to buy at these levels.  Insider buying is at a 10 year low.

InsiderSentiment.com 4 19 24