Macro Wrap – One Bullish Chart and One Bearish Chart

by Enis March 28, 2013 7:36 am • Commentary

Today I wanted to present one bullish chart and one bearish chart.  First, the bearish chart, courtesy of the prolific Josh Brown at TRB:

Chris Kimble at Kimble Charting Solutions shows us the S&P 500 versus NYSE cash available in brokerage accounts as well as an overlay of the margin debt chart. All measures are at extremes not seen since the prior to market peaks of 2000 and 2007.

Will history repeat?

Screen Shot 2013-03-28 at 7.11.49 AM


Self-explanatory.  Now for the bullish chart:

20 year monthly chart of SPX, Courtesy of Bloomberg
20 year monthly chart of SPX, Courtesy of Bloomberg


Ok, it’s basically the same chart.  The SPX is at its highs from 2000 and 2007 again.  Why would that be bullish?

When I talk to current bulls and bears alike, their uniform fixation is on a potential breakout in the SPX, similar to the DJIA’s strong breakout in early March.  Bulls are buying in anticipation of the record, and bears are covering in anticipation of the record.  Now that we’ve come this far, an eventual breakout with that psychology as a backdrop seems a natural next step.

So I do expect new highs this year in the SPX.  But on the first test, maybe not so fast.  Defensives have been leading us higher for the better part of 2 weeks, with XLP, XLV, and XLU the 3 horsemen holding the broader indices in the face of cyclical weakness.  Couple that with global equity weakness in the past few weeks (not just in Europe, but in Asia as well, where the Chinese Shanghai index was down 3% overnight, and is now down 1.5% on the year), and I’m skeptical that we have enough buying power to burst through those heavily watched resistance levels.

A short-term pullback to disappoint the bulls and embolden the bears, only to see the eventual record broken later in 2013 is my current, tidy narrative.  Probably too cute a scenario.  But anyone else’s guess is just that too – a guess.  No guarantees.  Not in this business.