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Technically and Fundamentally Speaking, the Major Stock Markets Look Sick

March 19, 2023

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12:14 am

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38 comments

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Economics

S&P 500 Weekly Chart courtesy of StockCharts.Com

S&P 500 Weekly Trendline Battle

The S&P 500 broke through key weekly resistance at the beginning of 2023. That breakout has not failed yet, but is already in a backtest of trendline support.

*Nasdaq 100 Weekly Chart courtesy of StockCharts.Com*

Nasdaq 100 Weekly Trendline Battle

The Nasdaq 100 is in nearly the same patter except that it is a bit further away from the downtrend line.

Monthly charts can help with the overall picture.

Nasdaq 100 Monthly Chart

On a monthly basis, the Nasdaq is below the long term uptrend line. Make the line with a fatter crayon or change the line slightly and the uptrend is still intact.

The horizontal lines are areas of technical support.

S&P 500 Monthly Chart

On a monthly basis, the S&P 500 is above the long term uptrend line. I ignore the Covid-related trendline break.

The horizontal lines are areas of technical support. There is support at 3400 and 3200 (not shown) and 2400 and 1800 (shown).

Fundamentally Speaking

Companies are paying more for labor
Biden’s clean energy demands are greater than monetary support from the ridiculously named Inflation Reduction Act
Consumer spending is not keeping up with inflation
Many banks are in poor shape
De-globalization (barely started), adds to corporate expense
A switch from just-in-time resource stockpiling to just-in-case resource stockpiling add to corporate profit woes

In bull markets, upward trendlines are bought fiercely and technical resistance is futile.

In bear markets, the reverse is true. Support eventually breaks, and breakouts are false.

In a typical bear market, the S&P 500 would lose about 50 percent. That’s the 2400 level in the preceding chart as well as one of my likely targets for this mover lower.

Given this is a bear market, there is no fundamental or technical reason to believe any alleged breakouts will hold.

This post originated at MishTalk.Com.

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38 Comments

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Counter

3 years ago

Your monthly chart upward trendline looks similar to the one broken in 2008. NQ engulfing on weekly. $SKEW index high, $MOVE index high. 3 month 4.747% 30 year 3.727%. Doesn’t seem to matter, anything I mention will be obsolete in 5 minutes

MarkraD

3 years ago

Since inception 1885, On average the Dow grew at a rate of ~50% per decade up to around 1980, any time it surpassed that rate the market would either flatten for a period or in the case of a bubble (see 1932) collapse inversely to the size of bubble.

That Dow growth rate has increased dramatically since 1980, at the same time so has both household and government debt.

At the same time wage & wealth disparity has also widened.

Reaganomics, it would seem, has allowed 99% of us to borrow in order to enrich the net worth of 1%.

The Fed has been a band-aid for 40 years, it’s no coincidence rates have gone lower and lower since 1980, and until household debt to income plus gov debt to GDP are much lower, the Fed’s going to be cornered at each economic bump to lower rates yet again.

As for wage inflation, I don’t buy the current notion that it’s all demand – wage inflation, we had Covid shortages, Russia’s energy shock and labor shortages to blame, solely restricting demand for supply problems will reduce demand, but it won’t help our debt problems, that the economy is so dependent on rates.

8dots

3 years ago

Reply to MarkraD

The Fed is doing fine, deflating US gov debt in real terms.

StukiMoi

3 years ago

Reply to MarkraD

“Reaganomics, it would seem, has allowed 99% of us to borrow in order to enrich the net worth of 1%.”

Not Reaganomics. That was just the initial symptom.

What allowed (hence effectively forced) “99% of us to borrow in order to enrich the net worth of 1%”; was the last and final decoupling of the dollar from any last vestige of a tie to Gold. Hence allowing entirely unlimited amounts of credit to be created out of thin air; to be distributed to the 1% closest to those with the newly unlimited money printing press.

Just like the clueless monkeys “making money from the home” today; that initial wave of Yuppies which propelled the Reagan “revolution”, could never have surfaced if all the freshly printed dollars they were handed, could be redeemed for Gold. But one there was no constraint whatsoever on money printing; then the entire nation of economic illiterates could run around pretending they, and their Senile-in-Chief, were somehow “smart” “investors” or something. Instead of just the illiterate bunch of mediocrities they, and Senile, really were.

8dots

3 years ago

Putin marked a drone, Sevastopol and Mariupol before returning home. Putin wrote Shi Appeasement Agreement. If Zelensky signs he might go down in flames. If not, Ukraine is gone. The invincible Shi cont to take risk. Shi imitate Napoleon who invaded every European country under democracy & freedom banner.

8dots

3 years ago

SVB plunge might help the crumbs. The Midwest depopulated. The old migrated, Gen Z and millennial are moving in. They come with

skills/ getting skills, find jobs, form families of mix races and new immigrants. The regional banks will fill SVB bank vacuum. They will

support high tech and new startups. The N. East boomers might drift to the Midwest, because the Midwest cost is less than 50%. FL and AZ

are overpriced, over hyped. The Midwest might beat the rest with mfg, high tech and young diversified people with high skills.

Lisa_Hooker

3 years ago

Reply to 8dots

The Northern Midwest has lots and lots of open fresh water, unlike FL and AZ and CA and NM and NV and UT.

ohno

3 years ago

Its been a huge pile of overpriced crap for sometime now. And now everything else is a huge pile of overpriced crap like a new car or house.

MPO45v2

3 years ago

The stock market might look weak and it should correct but there are other factors. If you are a person that has millions of dollars and you are worried about banking collapses and losing everything but 250k here are your options:

1. Buy government bonds – the problem here is the republican taliban is threatening to default so this is just as risky as banks in my opinion.

2. Buy real estate – yes real estate is over valued but if you have a long term horizon (10+ years) this may be a safer bet than keeping money in banks or government bonds. Alternatively, remodel your existing home to increase its value if you can find the labor to do so.

3. Buy stocks – I doubt Apple, Microsoft or Google will go bankrupt anytime soon even with bank failures or in a global depression so it may make sense to buy some stocks instead of option 1 or 2.

Of course, the correct answer is to diversify into all three and perhaps buy some gold if so inclined, but gold is not something I am chasing. Diversifying your money into a bunch of different bank accounts won’t work if they all are suddenly forced to merge the way they did in 2008 so don’t think it can’t happen and don’t assume you will still have above 250k insurance in that scenario.

If anyone has any better ideas, I’m all ears.

Captain Ahab

3 years ago

Reply to MPO45v2

20 years of Richter scale growth in asset markets (x axis in charts) will likely take more drastic measures.

MPO45v2

3 years ago

Reply to Captain Ahab

Don’t disagree that a massive correction is needed/coming but there are other factors, there are fewer and fewer safe havens to run to these days. The ultra-wealth also diversify into bitcoin, art work, collectibles and things like yachts but there are only so many yachts and art work one can buy.

Captain Ahab

3 years ago

Reply to MPO45v2

My problem exactly… safe haven time was a few years ago. It was risky though because the market was still humming along. Patience is key.

Captain Ahab

3 years ago

When the trend is predicated on an exponential axis I have SERIOUS reservations. There is no underlying fundamental cause except the Fed’s f#(kery with real rates. Be very careful assuming this is a trend

Siliconguy

3 years ago

Reply to Captain Ahab

Finding a straight line on an exponential plot is how you fit the equation. It proves the data is following an exponential curve.

That said, the market is still convinced Powell is more concerned with their profits than inflation. The S&P hasn’t made a serious run at 3200 yet, much less 2400. That’s not going to happen until the market truly believes the Fed has tossed them (and a good many sitting politicians) under the bus.

Jack

3 years ago

Reply to Captain Ahab

Axis is not exponential.

It is logarithm which is the correct choice. It does not conclude that the market is expanding “exponentially”.

Using logarithm simply shows doubling at low values having the same amplitude as doubling at high values.

8dots

3 years ago

Those who like to take risk can change the world. Shi takes a huge personal risk to broker peace. Game theory : if fail, he might hit

a bridge and die in flames.

8dots

3 years ago

Reply to 8dots

or become more hostile to the xxx and Ukraine.

Captain Ahab

3 years ago

Reply to 8dots

Xi is playing a game… be seen doing the right thing before Ukraine escalates to WW3. He has the high ground and will gain respect. The US is revealed as the warmonger state to non-European countries

Keep Trying

3 years ago

I tend to agree. I think we’ll return at least to mean on valuations and trends before a decent bull can resume. Making money on it is way more difficult, though. There is no telling how many times I’ve been on target about issues and problems and overvaluations, etc, but still struggle to actually make money. Survive, yes, but thriving is a different matter. With all the mismanagement, past central bank juicing everything, inept government(s), decreasing liquidity, banking troubles, etc. what could possibly go wrong. I don’t trust a market that the best thing going for it is negative sentiment bounces and plunge protection teams. Even so, I’ll probably figure out a way to not prosper. LOL

Salmo Trutta

3 years ago

Monetary savings, income held beyond the period in which received, or income not spent, flowing through the nonbanks (investors leaving the banks and buying Treasuries), increases the supply of credit (loan funds), but not the supply of money (a velocity relationship).

That’s part of the reason why yields fell.

Salmo Trutta

3 years ago

Reply to Salmo Trutta

Savers never transfer their savings outside the banks.

Reg. Q ceilings were enacted by the Banking Act of 1933 to decrease the competition for deposits. Banks used to store their liquidity, and now they unrestricted in the buying of their liquidity through open market devices. This creates the need to “reach for yield”. The banks just pay for the deposits that they collectively already own.

The competition between the regional banks and banks with assets > 250b has shifted the uninsured deposits “across the system”. It has destabilized the core deposit structure.

See: March 2023 Newsletter: A Look at Bank Solvency – Lyn Alden

All monetary savings, income not spent, originate within the payment’s system. But banks don’t lend deposits. Deposits are the result of lending.

The solution to the Austrian Business cycle is to gradually drive the banks out of the savings business altogether. And that doesn’t decrease the size of the commercial banking system.

Why do you think yields just dropped so much?

Captain Ahab

3 years ago

Reply to Salmo Trutta

Why does the Austrian business cycle need a ‘solution’?

Salmo Trutta

3 years ago

Reply to Captain Ahab

To eliminate the boom/busts/mal-investment, etc.

Captain Ahab

3 years ago

Reply to Salmo Trutta

So, a planned economy where bureaucrats decide what is best for you.

Salmo Trutta

3 years ago

Reply to Captain Ahab

We necessarily have regulated capitalism.

worleyeoe

3 years ago

Mish, that NASDAQ 100 graph is just nasty. The depth of the fall back in 2008 compared to March 2020 is just staggering. And, the massive jump in value is even more staggering. One really has to wonder what lies ahead this year and into 2024.

The current labor & stock markets seem immune to gravity. From the War in Ukraine, food / home / car / etc inflation, to unfettered illegal immigration, to China’s rising military / technological / economic dominance, to political / social division, to the noose around our neck from the growing national debt, our ability to stave off a significant contraction in economic activity grows dimmer as the weeks to months pass.

MarkraD

3 years ago

Reply to worleyeoe

So, you’re saying our inability to acknowledge and accommodate a suggested massive market decline, for a variety of randomly summed reasons such as “unfettered illegal immigration” (in a labor shortage, no less), is going to cause a massive market decline.

By the way, chicken is selling @$1.80/lb, go to a supermarket – in America, see for yourself.

Captain Ahab

3 years ago

Reply to MarkraD

Um… yes.. pretty much that nails it.

8dots

3 years ago

US 2Y weekly rose vertically up to 5.05% before it gap lower to a support line of a Lazer : Oct 10 close to Nov 7 close and to Dec 12 close. The 2Y closed Sep 12/19 gap. The 10Y dropped to Jan 17 fractal zone. It might soon popup because the small banks might cut their loss.

US gov lost it’s customers trust. The 2Y might cont down, in the Lazer. // The large and the small banks have never been more conservative. The large banks loan/deposits ratio : in 2000 100%, in 2008 110%, today : 60%, coming out from 55% in 2020. The small banks : 110% in 2000 and 2008, today : 83% coming out of 74%. The 2020 lows were nadir for both large and small banks. DXY dropped since Mar. // DIA & SPY flipped up on Mar 16. Fri was day #2. It might cont up, at least for a while…

amigator

3 years ago

Good stuff thanks. Can’t wait to watch NBC at 2400….lol

8dots

3 years ago

Reply to amigator

possibly after 4,500/4,600.

HippyDippy

3 years ago

Boy, the plunge protection team sure has its work cut out for them!

Captain Ahab

3 years ago

Reply to HippyDippy

Saving the Fed is the goal now. $1.1 trillion in the hole

Avery

3 years ago

There had been a stealth crash among lesser names since November 2021.

ThatsNotAll

3 years ago

Equity prices are valued on the expectation of a smooth transition to lower interest rates. The revelation that banks are sitting on major bond losses, and the FED is panicking about it raises doubts about the transition being smooth. The Nasdaq rally shows investors believe that cash rich, high margin companies will not be troubled by the storm in the credit markets. History suggests investors ought to grab a life jacket.

Captain Ahab

3 years ago

Reply to ThatsNotAll

I am now of the opinion gold is the best lifejacket. Panic is growing exponentially… like the charts.

JackWebb

3 years ago

Reply to Captain Ahab

I am rapidly coming to that view. I can hardly believe it, but I am making plans to buy $100,000 worth of physical gold just in case.

Lisa_Hooker

3 years ago

Reply to JackWebb

It is scary that that will buy only around 50oz, give or take, and fit in your pocket.

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