Baseline Analytics Blog

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At Baseline Analyitcs, we review about 30 key charts per day.  Two charts recently have flashed negative (bearish) indicators.

We track the momentum activity printed by the NYSE McClellan Oscillator. Note on the chart below, the vertical lines: green being bullish, red being bearish.  Note on our NYMO chart below, the solid red line on the right, which corresponded quite well with a "near peak" in the S&P 500 (pink line). Other bullish and bearish signals can be compared to recent levels of the S&P 500. 

NYMO07102017 

Our next chart is the % of stocks in the S&P 500 trading over their 50-day moving average.  We have recently seen a shift of that indicator below its 34-day exponential moving average.  Note the grren and red vertical lines and how they correspond with short-term peaks and troughs in the S&P 500.

 

50R07102017

 We utilize indicators such as these in order to decide whether to hedge equities in a positive or negative fashion.

Looking at the intra-day TRIN reading, note the sharp drop into extreme territory. Extreme dips in the past have led to short-term recoveries in the S&P 500.  

 

TRIN062917

While the TrendFlex signals remain bullish, the VIX extreme has reached a level that suggests a bounce is in order. See the blue circle on the right. Based on support levels, we would look for another dip in the S&P 500 of 15-20 points to encourage long positions.

VIC0517

 

While the TrendFlex signals remain bullish, the VIX extreme has reached a level that suggests a bounce is in order.  Based on support levels, we would look for another dip in the S&P 500 of 15-20 points to encourage wading back into long positions.

 

Note the divergence between the Dow Jones Industrial Average, reaching to new highs, and the lagging Transports. Another signal to hedge longs at this time.

dow

Two measures we follow to spot extremes in equities are flashing red, suggesting time to put on a hedge.

First, the VIX and Equity Put/Call Ratio are close to approaching extreme levels that in the past have presaged a decline in equities:

Vix

Secondly, the NYSE McClellan Oscillator is begining to shift to a negative moving average cross.  Note the dotted lines (green bullish red bearish) and the slower-to-confirm solid lines, below:

nymo

Market close update: The TrendFlex Classic CR signal has shifted to a BUY.

TrendFlex Classic CR is setting up for a potential buy at today's close.  See the chart below:

TFCCR03282017

The TrendFlex Credit Rick (CR) timing signal shifted to sell today.  Normally we wait for one day's confirmation so the jury is still out until the markets close.  Should the signal remain below its moving average at today's close, it will represent the first short-term sell signal on the S&P 500 since the November 8th buy signal.  TrendFlex Allegiance CR, the longer-term signal, remains a buy.

TFACR03092017

As the equity indices continue to forge new highs, our TrendFlex extreme indicators, utilized to identify a potential change in the market trend, hover around neutral to extreme readings.

Our Corporate Bond vs. S&P 500 index ratio as seen at the bottom half of this chart, pushed to a new low this week, and gapped widely below its moving average.  This is an extreme reading that bears watching for a trend shift.

LQD02242017

Our TED Spread indicator is neutral but on the verge of turning to a new extreme.  Note below how the CCI reading (bottom portion of chart), once it moves to the +100 level of the chart (blue sections), tends to precede a decline in equities.  Conversely, note the red zone (-100 reading) where the indicator foreshadowed a surge in the S&P 500.

ted02242017

Finally, our VIX and Put/Call indicators are mixed.  Although VIX has met up with its moving average (we look for large gaps from its moving average to confirm a pending trend change), it remains rather low at 11.47.

VIX02242017 

As the chart below depicts, VIX can remain low for a while before equities correct (see the blue vertical lines where VIX settled in the past near where it is today.

VXSPX

So perhaps equities are nearing the point where a consolidation or modest (5%?) correction is in the cards, which will hopefully dissipate some of the froth in the markets and introduce a new buying opportunity.  As the new administration moves further out of the honeymoon period, however, the challenge to pass business-friendly tax and other economic policies may begin to cast a shadow on bullish sentiment. 

The TrendFlex Classic CR (“Credit Risk”) indicator is a short-term measure of the risk of a change in the trend of the S&P 500.  We follow this indicator versus a moving average line and note Buy and Sell signals as the indicator crossed up (Buy) or down (Sell) through its moving average. 

As the S&P 500 has seen increased volatility while consolidating its recent gains, the TrendFlex CR indicator is close to breaching its moving average to the downside, a bearish development.  The signal tends to lead equities price movement, so we take this development as another caution sign for equities. 

Although the intermediate-term trend clearly is up, the risk of a short-term trend change appears to have increased.  See the chart below:

TFC02062017

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