us equity technicals
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7/30/2019 US Equity Technicals
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USEquityTechnicals,January15,2013
NJBucheleres
Ihaveincludedtwochartswithanalysisbelow.TheyarebothdoneontheSt.LouisFederal
Reserves(FRED)chartingservice,andbothareaugmentationsofmultipledatastreams.Iliketooverlaypopularandrelateddataindicesandfindextremeswithinthem.
UniversityofMichiganInflationExpectationsminusS&P500(blue)versustheS&P500(red)since1980
Asweseeabove,equitiespeakwheninflationexpectationsspike.Ashasbeendiscussed,I
believethatexpectationsarecontrarianindicators,andthischartillustratesthisconcept
case-and-point.Theyellowlineonthechartaboveisarbitraryinnominalvalue,butitis
importantinrelativevalue.Aswecansee,4ofthe5timesthattheInflationExpectations
minusS&P500hasreachedthisyellowlinelevel,ithasmarkedatop(someglobal,some
local)inequities.
LookfortheuptrendinexpectedinflationrelativetotheS&P500tobounceoffoftheyellow
supportlineandtraceoutasell-offinUSequities.
*Note:FREDdatalagsbyaboutonemonth;rightnowtheS&P500isat1,471.
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7/30/2019 US Equity Technicals
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ConsumerPriceIndexminusS&P500(blue)versustheS&P500(green)since1980
Inthisglobalcentralbankingenvironmentthatwehavecometolovegripswith,thistypeof
meanreversion(accompaniedwithvolatilitycrushing)isatrendthatIdontseechanginguntilanexitstrategyfromglobalQEisimplemented(ieratesareallowedtorise).That
beingsaid,thepatternabovespeaksforitself.BecausetheFREDdatalagsbyamonthorso,
theselevelsaremoredramatictoday(iefollowthedottedlines)thanthedatashows.This
almostseemstooapparent,butIbelievethatthisreversionwillcometoaheadoncemore.
Globalcentralbankinghasgiventhefalseillusionthatsomehowthemarketcanreplacethe
economy.Thisregimeworksoutbecausequantitativeeasingraisesassetprices(second
chart),thoserisingassetpricesraiseindices,andhigherindexlevelstrickledownto
sentimentandexpectations(firstchart).Oncepricesandsentimentbubbleup,they
eventuallycrashdownagain,andbeforeweknowit,therealeconomyhasbeenleftbehind
andpricesarerightbackwheretheybegan.
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