The Swiss National Bank Activity Should Be The Only Indicator Needed To Signal A Bear Market In Equities

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Includes: CRF, DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PPLC, PPSC, PSQ, QID-OLD, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWL-OLD, RWM, RYARX, RYRSX, SBUS, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPSM, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU-OLD, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, USSD, USWD, UWM, VFINX, VOO, VTWO, VV
by: David Belle

Summary

The SNB is the world's largest hedge fund.

Buy the dip should continue until we see large decreases in SNB holdings on quarterly filings.

Swiss govt bond yields maintaining positive value could be a signal that they will shed holdings.

As we all know, central banks have been the largest buyers of assets worldwide. In just 6 months they have purchased $1.6tn of assets. Large QE programmes, reduced aggregate demand globally after 08 and a requirement to actually make a return in the face of negative yields have caused central banks globally to be a price impartial buyer of various assets, and US equities especially have been the pick of the SNB.

Take a look at their top holdings (correct as of Q1 filing):

Just of note, they've increased their holdings of Apple shares by 3 million approximately since December.

For me, I would remain a buyer of the US indices purely off this basis. The trigger for me to change would be a discernible and sustained rise of Swiss 10YY. They are still well pushed under negative territory, although there could be the case of a slow rise:

I'd argue that until we see a real base made above 0%, and good rate increase expectations to sustain future rise in yields, we won't see any let up in the US equities rally (even with price this distorted). The ECB may lead the SNB in this. Last week they have signified that there will be no further rate cuts which would indicate that they do want to unwind their balance sheet (how, I do not know, but China may be a big buyer of EZ assets and may purchase at a big discount so the risk may payoff). This could prompt the SNB to act, which would lead to them selling their holdings. This is really why it's key to watch what Europe and the Swiss especially are doing, since I'd guess that central banks are possibly able to have a head start on the lowly investor. Maybe.

Going into this week, I'm still buying the dip on the SP500.

We're following the same breach into previous resistance turned support as we have been for God knows how long now, so if it ain't broke, don't fix it as they say. I believe that late Friday was a minor blip followed by slight panic selling on the velocity of the move. Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) were bought back pretty quickly and we can see from the above chart that the SP500 moved back into the range it has remained in for a few weeks now. However, a slip below 2400 and an upside retest of that handle would lead me to reconsider direction on an intraweek basis. We are quite clearly overvalued, but until I see the trigger I described above, nothing will deter me from remaining bullish.

Disclosure: I am/we are long SP500.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.