Diary of a Financier

Chart Updates: SPX, Small Caps & Transports

In Capital Markets on Fri 16 Mar 2012 at 17:35

I hate to harp on the chart updates and analogues these last few weeks, but the shoe fits. I’ve continued to discuss 2012’s resemblance of 2011, a surprisingly precise rebroadcast (at least anecdotally). My favorite chart analogue remains the 2010 overlay, particularly when equities/S&P 500 (SPX) are the subject.

Emerging from a hiccup on the right side of a classic Cup & Handle, SPX continues to pump higher in its bull continuation channel. The replication of late-2010’s fractal is precise:

SPY 2010 v 2012

While nearing the top of their range, indicators on a deterministic monthly fractal promise continued momentum. All major fractals (daily/weekly/monthly) concur with a snapshot of SPX from December 2010. Such alignment rarely occurs in this chronological proximity–especially when considering the inclusion of technical indicators (SMAs/Slow Stochastic/MACD/MFI ) in the comparison. (I do note the steep slope of today’s slingshot rally compared to 2010’s. Exceeding almost anything in recent memory, this vertical pitch tells me that most market participants’ expectations are aligned. Whether they consciously or subconsciously recognize the rhyme of my analogue, they’re piling onto the same side of trades, imitating one another. Not to cloud short-term bullishness with gloom, but these kinds of markets always correct.)

On the other hand, I’ve honed my focus more on 1q2011’s guidance in evaluating Small Caps and Transports. The data and the story around that time-period seem a snug fit for today’s circumstance. When I noticed SPX decoupling from both the Russell 2000 (RUT) & Transports (TRAN), I needed to determine when the spread would collapse. As expected, we’re experiencing bullish compression, wherein Beta outperforms blue chips with both trending higher. I turn again to the 2010 analogue and an overlay of SPX, where again I find reason to expect bullishness for both RUT & TRAN. At the bottom of these charts, I included a spread ratio in yellow, which shows the trough of divergence from SPX:

SPY v IWM- 2010 analogue says SmCaps about to rally...

SPY v IYT- 2010 analogue says Transports already bottomed relative to SPY.

I reiterate my expectation that risk will rally until earnings & macro data commence in April.

–Romeo

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  1. […] of Keynesian stimulus.  Thus far, recent slippage in the Shanghai index is consistent with my analogues to YE2010, so I don’t expect an imminent collapse resonant to American markets.  Same ol’ […]

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