Financial stress coming into markets

Confirmation & signs of a multitude of cycles rolling into their downward phases

We shared in our last update that we expected weekly and daily cycles to roll to their downward phases.

Here are some charts which are the outcome of this happening.

(1) A strong rise in the Financial Stress Index

The Financial Stress Index made a sharp peak with latest data to levels, seen only at the crisis 2000/2001, 2007/2008 and 2020. At each point triggering lower prices by 25%-50% on the global indices.

The financial stress index is shown on an inverted scale in the lower pane. The upper pane shows the S&P500:

FRED raw data - see the current peak with last data point from Friday 17 March:

We projected the following cycle in back in August 2022 for the Financial Stress Index, expected to rise into 2023. That’s exactly what we are seeing now. You can read the original analysis from 2022 here:

Dominant cycles speak one message: major trouble ahead for global stock markets (+ audio)

Financial Stress Index Cycle projection we did in this blog in August 2022, expecting a up-move into 2023… (see original post)

This is the updated cycle analysis for the Financial Stress Index. The nominal ~190 days cycle is still visible, approaching its peak in late summer.

Financial Stress Index, updated 26. March 2023, with dominant cycle of ~190 days (Data Source: FRED)

Summary:
The financial stress index is on its way up. This is not good news for the equity markets.

(2) S&P500 Equal Weight Index

During the last 2-3 weeks, markets went haywire. Techs leading a “rally”, banks in crisis mode. And technical indicators telling you want you want to see. We are left clueless just looking at the price behaviour of the last 3 weeks.

However, looking at the S&P 500 Equal Weight Index, which is not disturbed by large cap stocks, there are no positive or bullish signs. The EWI is also trading below the December lows and around the lows for the year. Reading this, it is a technical confirmation of our cycle forecasts that the cycles turned down in mid-March.

Conclusion:
You see the cycles rollin’…

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