This week: golden cross, correlations, election cycles, economic noise index, sentiment, tech flows and allocations, market concentration, reflections on valuations vs sentiment.
Learnings and conclusions from this week’s charts:
The S&P 500 has broken out to new all-time highs.
The S&P 500 has put in a “Golden Cross” (uptrend signal).
(election cycle) Seasonality is bullish for now, bearish later.
Sentiment is getting bullish again, but policy risk is rising.
Investors are running record high allocations to tech funds.
Overall, the apparent late-cycle reset is running its course with the “re-frothification” of markets. The strong bullish momentum observed since the tariff tantrum probably has room to run, but there are a few risk signals showing up, and the trade-war-truce expires next week. So it’s a balancing act of short-term bullish momentum, near-term risks, and longer-term pressures building up again
1. Golden Cross: After breaking free of that ~6000 congestion zone, the has broken out to new all-time highs and has now put in a “golden cross” (when the 50-day moving average crosses above the 200-day moving average). The breadth of stocks with a golden cross has also turned up from the lowest point since the 2022 bear market (albeit, interestingly, it is still sitting just below 50% (room to run?)).
By itself it looks like a picture of strength.
Source: MarketCharts
2. Golden Cross — what next? You might recall I covered the “” back in April, and noted that it had an imperfect track record, with the market gaining more often than not when activated. But the Golden Cross is generally a bit more consistent in terms of flagging upside — as you would probably expect; it’s basically a trend signal and you should expect a trend signal that detects uptrends to perform well for an asset that mostly trends up over time.
Source: @DualityResearch
3. Golden Cross — more history: And here’s some more history and stats on the Golden Cross… one thing to note from this is that there are a couple of exceptions to its positive performance, and mileage does vary even when it correctly flags upside, and of course you do see more variation in short-term vs longer-term returns subsequent to the signal activating.
Source: @SubuTrade
4. Global Crossings: Lastly, here’s a snapshot of Gold vs Death crosses for global equities. Two things stand out for me, first is the breadth indicator can help flag incoming weakness (when you start seeing more and more countries with a death cross) and early improvement (when that breadth indicator peaks and turns down). Second, take a look at the ACWI (black line in the chart), and see if you notice what I notice in terms of the greens vs reds…
Basically, it paid to stay mostly invested during the green zone (yep, makes sense to stay invested during an uptrend) — but for the red zones, most of the time it paid to look for buying opportunities or raise exposure to equities. The exceptions were the early-2000’s bear market, and 2008 financial crisis, but even then both of those instances eventually turned up some very good buying opportunities.
Source: Topdown Charts
5. Global Stock Correlations: This chart tracks the degree to which global stocks are all moving in the same direction — it spikes when panic sets in and investors move into “sell everything” mode, but tends to drop when the market is moving higher (especially when it’s driven by larger stocks and/or narrow leadership). The latest drop in this indicator is thus basically a mild risk-flag (forward-looking returns tend to be lower in the months after you see drops in this indicator).