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. 

Index & Sector ETF Signals - 3/3/2017 Update
TrendFlex Score & TrendFlex Signals for 2/24/2017

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