Different This Time? SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short SPY and Industrials (XLI)


My fundamental research view that Growth Slows As Inflation Accelerates has not changed. Market prices have. This is the same fundamental Growth/Inflation model I have used to call Growth Slowing turns in 2008, 2010, and 2011.


In the attached chart you can see that A) Q1 Tops (lower long-term highs) are frequent and B) unless you truly think it’s different this time (hearing some people call it the 1990s!) both VOLUME and VOLATILITY signals here are much more bearish than the ones we were flagging in Feb-Apr of last year.


Across my core risk management durations, here are the lines that matter most: 

  1. Immediate-term TRADE overbought = 1420
  2. Immediate-term TRADE support = 1405
  3. Intermediate-term TREND support = 1312 

In other words, the top end of this very tight range has every opportunity to hold into quarter end. There’s also a rising probability of a collapse to the mean reversion level of 1312 (ie a -7.5% correction, which would be approximately only half of the lightest mean reversion we’ve seen since the May 2010 top (15% draw-down from there to Jackson Hole Bailout bottom).


When volume signals are as bad as I have ever seen, and the VIX is at 14, I don’t think the high probability outcome is going to be different this time.




Keith R. McCullough
Chief Executive Officer


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