SPX | Balance of Power
已更新
Not all is equal. And nothing is static.
Entropy is the foundation of our world, and it is the bane of a rich man's existence.
You collect in one spot, then nature comes up and spreads your work around.
Entropy is the unbeatable power of justice. In the end entropy always wins.
One has limited amount of time to temporary evade it.
Panta Rhei - Heraclitus
Everything flows. Money just like water, tends to move around. It is what it is meant to do.
Rich men need poor ones to collect from. In the end, there is nothing else to collect from the poorer ones. But the cycle must continue. No rich man could ever possibly give out wealth for free. Instead, they let nature do its trick and rebalance things.
I will now try to make a rough model of the changes in markets. Divide markets in distinct periods so as to have a better understanding on the progress of a bull market.
Energy Conservation
Money and entropy tend to spread out. When the stock market was "invented", few had the stocks and many had the money. Trading is a way to manipulate entropy to our advantage. We let nature spread what we don't need, and as a repayment we accumulate what we need. The stock market is like a free energy machine.
The invention of the stock market resulted in a massive wealth transfer, and ended with a painful crash; The Great Depression. The peak of the Roaring '20s was the peak of wealth accumulation from the few.
In the post-Great-Depression economy, money spread out again. From the few to the many.
In these decades, DJI (the big 30) stagnated while SPX (the 500) progressively got stronger.
But the big-30 had an ace up their sleve.
In trading the game must always go on. There is always a way to get richer.
And so, commodities became the new place for wealth to accumulate to.
From all of the above we have come to realize that bubble tops come when the few have accumulated the maximum possible from the many. DJI/SPX measures oligarchy, while the inverse SPX/DJI measures democracy in the spread of wealth in stocks.
Many bubbles and many crashes have followed after the Great Depression. The .com bubble crash and the GFC are memorable to young and old alike. And they all exhibit the same base structure. It is all the same, with one crucial difference.
The 2020 economy is vastly different from the 1920 economy.
The role of SPX and DJI has changed in the last few decades. DJI used to represent the companies that shaped bubbles and SPX the ones that followed. Now NDX and SPX are the indices that represent fast growth while DJI has taken the role of the "index of stability".
The modern balance-of-power measure is the following:
SPX-equal-weight divided by SPX-market-cap.
tradingview.com/news/reuters.com,2023:newsml_L1N3BN12W:0-time-to-head-the-magnificent-seven-off-at-the-pass/
Since I couldn't find an SPX-equal-weight index in TradingView, I have constructed a similar chart using two ETFs, RSP and IVV. The RSP/IVV chart is a good analogue to the standard chart.
And so, where do we conclude?
After much analysis we can say the following in retrospect.
The 2008 bubble was quick but with big repercussions.
Money democracy shows signs of impeding financial weakness.
And as for the post-2009 Bull Market...
We realize that it progressively turns into a bubble. While there is no definitive way to "normalize" SPX, SPX/M2SL proves a good candidate for absolute SPX cost.
Yield rates tell many tales.
Usually yield rates increase as the wide economy needs them. Strong economies need a lot of money and they can withstand high yield rates. And contrary to popular belief, yield rates are positively correlated with yield rates. Now however, the wide economy refuses to absorb such high yield rates. High production cost and high rates can destabilize the economy.
Money Democracy is Positively Correlated to Yield Rates.
Now we witness the wide economy refuse to absorb these yields.
This has resulted in unprecedented wealth accumulation from the few.
Speculation Chart:
While this type of analysis is subjective, it is interesting to see patterns repeat.
Composite Chart:
An experimental chart attempts to calculate the scale of the derivative bubble we are in.
We realize that equity prices are now lying. They are simply too inflated and riddled with derivatives to believe in.
All of that was quite complex to follow through, and even harder to make a conclusion.
In the end, the simplest analysis might be the best.
A massive bearish upward channel has formed. Now price has rejected once again off the ceiling. The real recession may have not even started yet...
Tread lightly, for this is hallowed ground.
-Father Grigori
Bonus Charts:
Have we reached a golden ceiling?
Entropy is the foundation of our world, and it is the bane of a rich man's existence.
You collect in one spot, then nature comes up and spreads your work around.
Entropy is the unbeatable power of justice. In the end entropy always wins.
One has limited amount of time to temporary evade it.
Panta Rhei - Heraclitus
Everything flows. Money just like water, tends to move around. It is what it is meant to do.
Rich men need poor ones to collect from. In the end, there is nothing else to collect from the poorer ones. But the cycle must continue. No rich man could ever possibly give out wealth for free. Instead, they let nature do its trick and rebalance things.
I will now try to make a rough model of the changes in markets. Divide markets in distinct periods so as to have a better understanding on the progress of a bull market.
Energy Conservation
Money and entropy tend to spread out. When the stock market was "invented", few had the stocks and many had the money. Trading is a way to manipulate entropy to our advantage. We let nature spread what we don't need, and as a repayment we accumulate what we need. The stock market is like a free energy machine.
The invention of the stock market resulted in a massive wealth transfer, and ended with a painful crash; The Great Depression. The peak of the Roaring '20s was the peak of wealth accumulation from the few.
In the post-Great-Depression economy, money spread out again. From the few to the many.
In these decades, DJI (the big 30) stagnated while SPX (the 500) progressively got stronger.
But the big-30 had an ace up their sleve.
In trading the game must always go on. There is always a way to get richer.
And so, commodities became the new place for wealth to accumulate to.
From all of the above we have come to realize that bubble tops come when the few have accumulated the maximum possible from the many. DJI/SPX measures oligarchy, while the inverse SPX/DJI measures democracy in the spread of wealth in stocks.
Many bubbles and many crashes have followed after the Great Depression. The .com bubble crash and the GFC are memorable to young and old alike. And they all exhibit the same base structure. It is all the same, with one crucial difference.
The 2020 economy is vastly different from the 1920 economy.
The role of SPX and DJI has changed in the last few decades. DJI used to represent the companies that shaped bubbles and SPX the ones that followed. Now NDX and SPX are the indices that represent fast growth while DJI has taken the role of the "index of stability".
The modern balance-of-power measure is the following:
SPX-equal-weight divided by SPX-market-cap.
tradingview.com/news/reuters.com,2023:newsml_L1N3BN12W:0-time-to-head-the-magnificent-seven-off-at-the-pass/
Since I couldn't find an SPX-equal-weight index in TradingView, I have constructed a similar chart using two ETFs, RSP and IVV. The RSP/IVV chart is a good analogue to the standard chart.
And so, where do we conclude?
After much analysis we can say the following in retrospect.
The 2008 bubble was quick but with big repercussions.
Money democracy shows signs of impeding financial weakness.
And as for the post-2009 Bull Market...
We realize that it progressively turns into a bubble. While there is no definitive way to "normalize" SPX, SPX/M2SL proves a good candidate for absolute SPX cost.
Yield rates tell many tales.
Usually yield rates increase as the wide economy needs them. Strong economies need a lot of money and they can withstand high yield rates. And contrary to popular belief, yield rates are positively correlated with yield rates. Now however, the wide economy refuses to absorb such high yield rates. High production cost and high rates can destabilize the economy.
Money Democracy is Positively Correlated to Yield Rates.
Now we witness the wide economy refuse to absorb these yields.
This has resulted in unprecedented wealth accumulation from the few.
Speculation Chart:
While this type of analysis is subjective, it is interesting to see patterns repeat.
Composite Chart:
An experimental chart attempts to calculate the scale of the derivative bubble we are in.
We realize that equity prices are now lying. They are simply too inflated and riddled with derivatives to believe in.
All of that was quite complex to follow through, and even harder to make a conclusion.
In the end, the simplest analysis might be the best.
A massive bearish upward channel has formed. Now price has rejected once again off the ceiling. The real recession may have not even started yet...
Tread lightly, for this is hallowed ground.
-Father Grigori
Bonus Charts:
Have we reached a golden ceiling?
註釋
How have I not seen this before?
免責聲明
這些資訊和出版物並不意味著也不構成TradingView提供或認可的金融、投資、交易或其他類型的意見或建議。請在使用條款閱讀更多資訊。