When offence becomes defence

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I came across a well-known market commentator stating emphatically that the S&P 500 Consumer Staples and the Consumer Discretionary Index ratio is a great market timer. When I see overconfident statements, I always like to do my homework, as I liked the idea. It makes logical sense to me that staples are defensive and discretionary is offensive, so perhaps the ratio can pick up extreme optimism and flag market turns.

After fiddling around with the chart scaling, we get the picture below. I might add that I go back all the way to 1991, which fits with my philosophy of working with long time series to capture as many cycles as possible to increase robustness.

I would love to tell you that this is going to make you millions, but I cannot see anything vaguely reliable as a market top indicator. If I can take away one observation, it would be that a sharp sustained increase in the ratio might show some promise, but this is not something I think is worth spending any more time on. Seen enough.

Turns out I have torn the tendon in my elbow. I suddenly don’t feel like the baby I have been for the last 8 weeks, complaining about how sore my tennis elbow is in this newsletter and to anyone who shakes my hand. The reason I share the image is because I have just had an ultrasound-guided cortisone injection. I have no idea what the scan is showing. I think it is also why some radiologists see some things and others miss the diagnosis. If you zoom in on the right, there are smaller images where there are some colours highlighting abnormal activity. What I am trying to say is that until the radiology profession introduced more science and statistical analysis to the process, patients were exposed to more subjective opinions than they would have liked.

In my own long-winded way I have tried to use the ultrasound as a metaphor for the charting industry. There is way too much subjectivity; practitioners need to introduce more objective measurements to their calls.

S2N observations

I was quite taken by this chart but not surprised. It is clear to me that with the increase in internet connectivity and market availability, people are much more prone to trade than sit on their hands. This shorter holding period has not really hurt investors, as markets have been making new highs, so while you may not be keeping up with the index, you are still having fun making money.

Having studied this subject in great detail with the subgroup of active traders, you usually find that shorter usually means worse performance. I wouldn’t be surprised if a study looking at the performance of active investors versus the averages highlights the point I just made.

I haven’t yet touched on Trump’s Nvidia shakedown last week, but I have to say his book The Art of the Deal was prophetic in crowning him the archetypal dealmaker.

I found Mish Shedlock’s comments below interesting. I don’t think the constitution will pose any obstacle to President Trump getting this through. I wonder which company or industry is next?

Final observation: I am seeing many commentators comment on how extreme the concentration of the Magnificent 7 is at 35% of the S&P 500 index. That is nothing compared to the Railroads’ 63% in 1881.

Take a look at the crypto table below to see the insane moves in Ethereum. Across the broader crypto market, over $476 million in liquidations occurred in the same 24-hour period, with nearly half attributed to ETH. This reflects the losses of leveraged traders getting stopped out by the exchange. Ouch!

S2N screener alert

Yesterday saw many new ATHs; the S&P 100 Global Index, the Nikkei, and Bitcoin are just 3 I will highlight.

The MSCI Singapore Index had a huge move yesterday.

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