Bear case first:

As seen on the above chart the 200day simple moving average of S&P500 changed it’s direction for only the 7th time in last 20 years.

That trend is now down. 5 out of 6 previous changes in direction lasted for years. The only head fake occurred in 2011.

Here is another interesting chart favoring the top-is-in narrative.

I don’t use Fibonacci numbers much but the precision here is astounding.

Fib

Volatility

The 30 day volatility index VIX bottomed back in July 2014.

It was 10 months ahead of the S&P top which occurred in May 2015.

The interesting thing is: VIX did the exact same thing ahead of the 2007 top! 

To be fair it’s been rising at a somewhat slower rate this time.

VIX SPX

 

How are the fundamentals? 

Who knows? First of all which fundamentals are looking at. More than 1/3 of S&P500 revenue comes from overseas.

The accounting also makes it hard to get a clear grasp on what is going on and data sources are now diverging.

Quarterly earnings chart by Yardeni.com:

vidi se

 

Depending on the source and method (GAAP or adjusted) earnings numbers vary but most show deterioration. 

2 takeaways from the chart below:

⇒Earnings are generally not a leading indicator, they mostly go in line with the price and spend more time lagging than leading.

⇒There is an obvious divergence currently.

nevidi

FA guys would probably argue the energy sector card but I really can’t fathom conveniently excluding one sector. As if previous periods did not have their laggards.

 

 


Let’s see the ( still ) Bullish side:

Employment

Jobless claims are still hitting record lows.

Both at 2000 and 2007 tops jobless claims were already trending up.

A change of trend now would obviously add to the bearish case but no signs of it yet.

 

Jobless Claims

The unemployment rate has been steadily declining and shows there’s still some room left below compared to previous bottoms. 

Unepmloyment

Yield Curve is not inverted (yet)

Both the 2000 and 2007 tops aligned with inverted yield curves.

It has been flattening for the last 2 years and is now at levels not seen since the beginning of 2008 but there is

around full year left before going inverted at current flattening pace.

Yield Curve

Shorter term trend 

Here is SPX daily chart with the rising channel from 2011 top and low. It held during the January/February selloff.

Channel


 

Summary

Bearish: Long Term Price, Volatility & Earnings

Bullish: Short Term Price, Employment & Yield Curve

Of course, this is by no means a full list of indicators. 

Given all of the above, if pressed I’d give slightly more weight to the bearish argument.

P.S. I know it is a FED day today, but it doesn’t change any of the above.

Trade well,

Ivan


Disclaimer: This is not investment advice. All information should be used for educational and informational purposes only.