Rising Market Illusion Suggests a bet Against the S&P 500
The S&P 500 looks like it’s exploded higher this year, stringing together seven winning months in a row… but what’s really happened? Graham Summers of OmniSans Research shows that equities are only consistently rising in US dollar terms.
Usually when we look at a chart of the S&P 500 it’s priced in dollars. However, this year there’s a problem with that approach. The dollar has lost 15 percent of its value, and although equities are rising in dollar terms, they’re not necessarily rising relative to most other assets.
When you look at charts of the S&P 500 priced in euros, yen, or Swiss francs, a very different story emerges. In these currencies the same index has not been rising, it’s been trading sideways for three months. The index rises a bit and then falls and bounces off of a consistent support level. So, viewed in other currencies, the S&P 500 has not continued moving to the upside, and worse, if it breaks support a big collapse in equities could result.
According to Summers, “these charts are flashing very serious warning signs that the US market has put in a major top. Far more importantly, there is the potential for a very serious collapse in US stocks.”
The entire Seeking Alpha content is worth a thorough read, especially the telling charts that show how the dollar’s decline has contributed to the market’s rise.