Weekly Report | S&P 500 MACRO!

ENJOY WITH A GOOD COFFEE!

The “suggestive” title of the first chart represents the massive desperation of individuals operating in the market – in general: Reasons To Sell!

DON’T SELL IN DESPERATION!

If you are a conscious, rational, controlled investor and can interpret the harmful environment of the markets, you will be able to identify that the news is extremely harmful. These induce the great mass to follow the same path: almost always towards the cliff. By the way, this can even bring you a certain comfort, after all, you followed the majority and threw yourself: when the act is collective, the pain tends to be “minor”, right? Your responsibility and yours mental suffering has become practically nil as everyone around him has taken the same irrational path.

Your guilt – and your prejudice – is now acceptable; since there’s no way to “envy” someone you haven’t seen “get along.”

Be a part! This is typical petty human behavior.

The graphic below demonstrates just that. All red dots indicate some moment of ‘fear’ or ‘extreme fear’ that caused those anxious and desperate for news to start the “cliff run”. But it all passed! While many followed the flow of chaos and threw themselves headlong into the beautiful, finite precipice, a few others simply continued to go on with their lives.

They interpreted the moment in the appropriate, rational and individual way: many accumulated a sum of money to go shopping: it’s like going to the Mall after Christmas.

IDENTIFYING THE CLIFFS

Again, I advise that my intention is to identify the exact opposite: visualize the cliff ahead and hold steady waiting for the flow to throw itself into the mall avoiding the transit.

Below: the first macroeconomic index to be analyzed.

Settings:

1. Compound Economic Index (EOCI): Statistical tool that groups many stocks, bonds and different manufactured indices to create a representation of general market or general economic performance. Composite indices are used to conduct investment analysis, measure economic trends, and forecast market activity.

2. ISM Manufacturing Index: The ISM Manufacturing Index, also known as the “managers’ index Purchasing” (PMI), is a monthly indicator of US economic activity based on a survey of purchasing managers at more than 300 manufacturing companies. It is considered a key indicator of the state of the US economy.

A Orange Line informs us, since 1964, of the Composite Economic Index of the United States (EOCI). Every time this index touched above 50% of the ISM Manufacturing Index, soon there was a strong correction (retraction) – both of the of the economic index itself, as well as of the American market.

In October of this year approximately 60% of the ISM Manufacturing Index was registered. The S&P 500 (Black Line) followed up afterwards (by earnings estimates of the companies that compose it). Historically, it indicates to us that there will possibly be a sharp correction in the American market.

It is not interesting to follow the irrational flow of individuals operating in the market contrary to a history of nearly six decades: many of them may be heading towards the cliff.

Don’t despair! Hold your ground to continue on your way to the mall.

Another intuitive chart relating ’10 Month Average Movement’ data (Blue Line) to the S&P 500 Index (Black Line). Over the past 20 years it has become quite clear that there was an intense / prolonged correction of the S&P500 as it drifted more sharply from its ‘Average Movemen’t.

From another perspective:

The High Yield Total Returns (Light Blue Line) have been stagnant since the end of 2019. Consequently, the entire S&P 500 bullish (Dark Blue Line) is based on and Credit: subsidies; indebtedness rollover and; principally, an absurd addition of the monetary base by the FED (American Central Bank). In a very basic and weird way: The Market is being fed practically “artificial”, almost like a Ponzi scheme.

Now, let’s get down to business:

INFLATION!

The graphic below demonstrates the history of the S&P 500 (Blue/Red) when faced with the Inflation Instability (Black Line) in the respective periods (1985 to 2021). It is observed that every time there was an inflation above normal, from ~3%, then there was a strong retreat, or stagnation, of the S&P 500.

In some cases, there was a sharp drop in the index (Red). Remembering that the significant increase in inflation is based on general economic instability.

The individual who kept his behavioral characteristics exactly the same as the vast majority, without trying to understand the moments of the market cycles, inevitably followed the great flow of the market. Obviously it is not useful to see the invested equity being “eroded” abruptly, however, by closely following the movement of this macro cycle, it is possible to have a good management of the assets themselves, using cash more effectively.

FINALLY

FLOW AGAINST THE FEELING

The “Fear & Ambition” Investor Sentiment Index demonstrates daily how general market sentiment is. It is used more in the short/medium term to determine the levels of ‘fear and ambition’ that individuals operating in the market find themselves.

As ​​we manage to improve emotional and psychological self-control according to the current cycle, we get used to our behavior exactly at the opposite time to the Sentiment Index. Sometimes we “torture” ourselves when trying to control the greedy instincts that permeate our inner human being, mainly because these smaller cycles take weeks or months to complete, leaving us to understand that we are ” failing to win”, being left behind, or even by emotional incapacity about anxiety, nervousness or anguish of seeing the money just there, standing in the Brokerage’s ‘Cashier’.

Note that I have identified the moments that are most promising to ‘buy’ the assets, which can generate a greater return over the time invested and, consequently, “reduce” the Intrinsic risk of investments: with qualitative assets.

Make good deals with the Extreme Fear of the other! For that there is the study of market cycles.

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