Baseline Analytics Blog

Market risk assessment tools and tactical investment opportunities driven by curated financial insight

Checking in on the Trend Extremes - 2/26/17

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. 

Mr. Palmerton is the Founder of Baseline Analytics, and has 30 years of experience spanning corporate finance, asset management and financial markets research. He has held positions as CFO, Director of Finance, and Financial Management and Analysis roles for Fortune 500 and multi-national firms (ADP, Honeywell, Linde Group) as well as for early-stage and emerging growth ventures).

Bob founded Baseline Analytics in 2005. With the objective to utilize technical analysis of the financial markets, coupled with macro-economic trends, Baseline Analytics strives to keep investors on the right side of the market at all times. Bob developed the TrendFlex indicator, comprised of a blend of financial indicators that assess the risk of a change in market trend. Baseline Analytics’ TrendFlex models are utilized as the basis for asset allocation strategies of The Absolute Return Market Trend Portfolio. Mr. Palmerton’s articles and blogs can be found on Seeking Alpha, Finding Technicals and Baseline Analytics.

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