The Fed & Inflation: Has Risk Risen? Weekly Nifty 9

Research Report Excerpt #1

All of this standing in place has brought about a significant divergence in the 2010 analogue above. Despite a second down wave during the first 3 days of the past trading week, with the bounce-back on Thursday (5/20), the S&P 500 was never more than -4% from the last high reached on 5/7/2021. I still anticipate the pullback period to be in the -5% to -8% range and since that still hasn’t happened, I believe it is still too soon to declare the consolidation period over. As you can see in the analogue above, the current price is more than 27 percentage points above the 2010 analogue, so there continues to be a lot of POTENTIAL pressure for it to fall (at least a modest amount) in the near term. Therefore, it remains prudent to exercise caution as part of one’s game plan for at least another week or so. If even cheaper valuations are found, execute your game plan with an eye on market breadth and key support levels. If the market turns higher and in accordance with some of the seasonal and quantitative trend analysis, again, refer to your game plan with respect to higher prices.

Research Report Excerpt #2

More than 90% of the components in the S&P 500 were trading above their 50-DMA back in May of last year. The past 11 times this happened, the S&P 500 was higher a year later 10 times and up nearly +16% on average (SPX).

What is so interesting about this study is that it would appear as though everyone fell asleep at the wheel of the April 2021 market rally to new all-time highs. Why do I say this? On April 14, 2021 the percentage of stocks trading above their 50-DMA was 90.10 percent. The S&P 500 closed at 4,124 on this day. (See breadth chart below)

Now, reference the study concerning this breadth signal and calculate for the forward S&P 500 one and 3-month returns for the sake of brevity. With an average gain of 1.6% after this breadth signal, that would have found the S&P 500 at 4,190 around May 14th. The intraday high on May 14th was 4,183. Just saying, lean into the historic and/or quantitative studies folks. And now calculate for the 3-month average return when greater than 90% of S&P 500 stocks are trading above their 50-DMA.

Research Report Excerpt #3

There are 2 formulas for the McClellan oscillator. The original formula, and one that adjusts for changes in the number of stocks listed on the stock exchange. The adjusted formula allows for a better comparison of values over longer periods of time.

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