TheValueist
Discretionary Long/Short Investor, TMT/Energy, Convexity & Factor Awareness
The S&P 500 rally likely has a few more days worth staying exposed to, because SPY's cumulative advance/decline line is still below its all-time high. The A/D line turned up at the end of March and its trend remains positive. The Fear & Greed Index keeps climbing, though, so it may be time to start dialing back exposure. x.comÂ
SPY's current pullback looks brief because whale accumulation remains above the level associated with mid-term trend continuation. The reading is 87.74%; it fell below 80% before both recent major crashes. Barring a black-swan event or major unexpected fundamental shift, this decline looks closer to earlier minor corrections. The stock market still has significant upside, and fear-driven discounts remain opportunities. x.com x.comÂ
Friday's extremely high volume in the S&P 500 suggests US large-cap stocks may be close to a bottom. The last bottom came last April during the tariff scare, at a reading of 3 on the charted indicator. This is a tentative technical read. x.comÂ
A new SPY low alongside a lower VIX high often, though not always, signals a near-term reversal. A roughly 30% VIX jump makes a shallow rally likely Monday or Tuesday, but after breaking below yesterday's low following a trend-line backtest, SPY still looks headed for $750 soon. x.com x.comÂ
Extreme fear suggests the SPDR S&P 500 ETF Trust is closer to a local bottom than a local top. The Fear and Greed index reads 22, VIX is at 18, and the fund is only 2% below its all-time high. x.comÂ
A sharp VIX spike followed by a reversal has historically favored SPY over the following weeks when VIX was at or below 25. After a 21% spike Friday and a 7% fall today, SPY's one-week return averaged 1.10% in 14 comparable events over the past decade, with gains in 12; the next-day average was just 0.07%. Could this have been capitulation? x.com x.comÂ
The S&P 500 is vulnerable to a midterm-election drawdown, since history shows nasty 7-16% declines almost always come around midterms. Elevated 10-year yields and a strong dollar add risk, even though nothing looks bearish yet and rising yields have not dented the Nasdaq or mega-caps, and cheap volatility makes hedging attractive. SPY could reach $800 and still fall back to $750 within two months. x.comÂ
Improving breadth and GPUs massively outrunning depreciation costs put US-equity risk/reward heavily in bulls' favour. Some 59% of S&P 500 stocks are above their 50-day average; the Nasdaq 100 is positive over five trading days, and small caps bounced off their 200-day average. Buy gradually, as the selloff may not be completely over. x.comÂ
Extreme fear has historically offered strong long-term S&P 500 buying opportunities. After VIX spikes above 30, 35 and 40, average 12-month S&P 500 returns were 23%, 28% and over 30%, respectively; after spikes above 40, returns were positive more than 90% of the time. x.comÂ
US stocks remain vulnerable because leveraged long positions could amplify an unwind of the mania. The SPY-versus-long-Treasury trade has given back only a few weeks of its gains. x.comÂ
US large-cap equities offer a smoother path higher than individual stocks as returns become more dispersed, with different sectors leading each day. Indexes are near all-time highs, and earnings season in two weeks could bring rerating and an S&P 500 breakout if earnings growth keeps momentum. Yields are back at all-time highs and a rate scare may come this week; any macro-driven drawdown is a chance to add risk. x.comÂ
