Baseline Analytics Blog

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Charts can speak a thousand words, so I will let the lines and arrows tell the story below.

Looking for extremes (vs. moving averages or peaks and troughs), compare the points of the blue arrows to the sames points on the green S&P 500 line.

The relationship here is the iShares iBoxx Investment Grade Bond Fund vs. its moving average as well as compared to a ratio of the ETF to the S&P 500.

Interesting comparisons that point toward additional evidence of the oversold equity markets. 

Here is the updated chart as of 12:10 pm 1/15/16: 

GAP2

Written by Marc Chandler.   The US stock market and the oil market appear joined at the hip. TheGreat Graphichere, created on Bloomberg, shows the correlation of the two markets. It is near 0.77, which is the highest since September 2013.  
 
 
The correlation was conducted on the level of the S&P 500 and the level of the front-month light sweet crude oil futures contract. It tells us that the two markets have been moving in the same direction nearly eight of ten sessions over the past 60 sessions.  
As the chart shows (on the left is the correlation and on the right is the frequency distribution), the correlation is not stable, and presently it is at an extreme. Although it is a descriptive statistic, I read it as a warning that such a tight fit is not sustainable and will break down. Although the correlation holds, it is a salutary caution to short-term traders that while knowing the direction of oil has been a good tell of the direction of the S&P 500, one ought not bank on it for much longer.  
Investors are more interested in the correlation of returns rather than levels. Here the correlation (percent change) is about 0.33 over the last 60 sessions.  This is thelowerend of four-month range. The peak since 2013 was set this past November a little above 0.50.  
Over the past 30-days, the correlation of returns is near 0.25. Yesterday it was nearer 0.20, which is lowest since last June.  

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Written by Marc Chandler.   The US stock market and the oil market appear joined at the hip. The great graphic here, created on Bloomberg, shows the correlation of the two markets. It is near 0.77, which is the highest since September 2013.  
 
 sP and oil
The correlation was conducted on the level of the S&P 500 and the level of the front-month light sweet crude oil futures contract. It tells us that the two markets have been moving in the same direction nearly eight of ten sessions over the past 60 sessions.  
As the chart shows (on the left is the correlation and on the right is the frequency distribution), the correlation is not stable, and presently it is at an extreme. Although it is a descriptive statistic, I read it as a warning that such a tight fit is not sustainable and will break down. Although the correlation holds, it is a salutary caution to short-term traders that while knowing the direction of oil has been a good tell of the direction of the S&P 500, one ought not bank on it for much longer.  
Investors are more interested in the correlation of returns rather than levels. Here the correlation (percent change) is about 0.33 over the last 60 sessions.  This is thelowerend of four-month range. The peak since 2013 was set this past November a little above 0.50.  
Over the past 30-days, the correlation of returns is near 0.25. Yesterday it was nearer 0.20, which is lowest since last June.  

 

The Williams Analytics LLC Blog has just posted a new article on the state of the US macroeconomy and what could be in store for the S&P 500 E-mini and 10-Year US Treasury Note.

As a brief preview, the macroeconomy is growing, especially on the real personal income and real retail sales front. Still, while both of these measures have been outpacing inflation on a year-over-year basis, slow-downs and volatility in each may be on the horizon.

The big news is with the S&P: despite the strong drop as of late, our forecasting models are predicting even further declines, especially in February. Whether a reversal to this strong drop materializes is a matter where only time will tell.

The 10-Year is expected to follow a long-established "W"-shaped trend in the year ahead. Much of this shape may be due to an anticipated manic-like reaction in the 10-Year with respect to new macroeconomic news.

Gain more detailed insights today by visiting the Williams Analytics Blog and by downloading Williams Analytics' many FREE Indicator Reports!

Charts can speak a thousand words, so I will let the lines and arrows tell the story below.

Looking for extremes (vs. moving averages or peaks and troughs), 

 

 

 

GAP

Charts can speak a thousand words, so I will let the lines and arrows tell the story below.

Looking for extremes (vs. moving averages or peaks and troughs), compare the points of the blue arrows to the sames points on the green S&P 500 line.

The relationship here is the iShares iBoxx Investment Grade Bond Fund vs. its moving average as well as compared to a ratio of the ETF to the S&P 500.

Interesting comparisons that point toward additional evidence of the oversold equity markets. 

 

GAP

The technical overview is bearish and approaching an extreme at which a bounce is likely.  

Per the chart below, the S&P 500 breached major support from the December/January lows on higher volume. Rally attempts (i.e. last night's futures) are met with selling as the market looks to establish a new foundation.

Extremes in bearish readings, denoted by a high VIX reading as well as the Put/Call Ratio, suggest an impending bounce. In addition, stochastics (bottom of the first chart) are reaching oversold levels and reinforce the potential for a rally.

BLAMT1

Market breadth as seen by the NYSE Advance-Decline line held up reasonably well, but is not a convincing positive.  Note today (chart at 10:58 am) that the high/low ratio is trying to bounce, but early positives appear to be taking a backseat to the risk-off trade. 

BLAMT2

Our technical indicators below underscore the defensive nature of the markets, as bonds and defensive equities (staples vs. discretionaries) outperform.

 BLAMT3

So from a purely technical perspective, the edge has to be given to the bears.  Tradeable rallies will ensue, and we will be on the lookout for an impending recovery. Stability in China and a cessation of oil's price decline are potential positives that can sustain a resumption of the uptrend as we move further into the new year.  The economy is holding up reasonably well, as a bear market-induced recession is not a likely event.  Bear markets happen due to recession, an inverted yield curve, or a liquidity crisis, none of which are on the immediate horizon.

We view this as a correction in a "consolidating" to slightly bullish market.  Given the age of this bull market, modest annual gains (if not flat performance) may be in store.

 

 

 

 

The Williams Analytics LLC Blog has just posted a new article on the state of the US labor market and what could be in store for the S&P 500 E-mini and 10-Year US Treasury Note.

As a brief preview, the US labor market is still improving but with declining momentum (finally) being seen consistently in both the forecasts and the actual data. U3 is very near the labor market's long-run unemployment rate meaning that the recovery was, in terms of numbers employed, a success. However, future labor market growth is not likely sustainable (at least not at the pace as in prior years).

The S&P has, is, and is anticipated to be positively correlated with labor market fundamentals. This, on the one hand, brings market participants a degree of comfort that the market still acts as a discounting mechanism for fundamentals. On the other hand, lower labor market momentum may prove to be a drag on future S&P returns. The 10-Year is still negatively related to labor market moves although this relationship is forecasted to ease, particularly after mid-2016.

Gain more detailed insights today by visiting the Williams Analytics Blog and by downloading Williams Analytics' many FREE Indicator Reports!

The Williams Analytics LLC Blog has just posted a new article on the state of the US single-family housing and what could be in store for the S&P 500 E-mini and 10-Year US Treasury Note.

As a brief preview, US single-family fundamentals (e.g. Units Started, Units Under Constructions, etc.) continue to grow slowly. Conversely, inflation-adjusted median and average housing prices remain completely inflated; disconnected from reality and the underlying single-family fundamentals.

With respect to asset prices, the S&P 500 E-mini is still "enjoying" a 75% premium over general asset prices (the Williams Analytics Broad Asset Index) while the 10-Year is much less inflated (only 16%). For the 10-Year, its premium could be a slight bout of overpricing or a reflection of the fact that general asset prices have been in bear territory since 2014. For the S&P, however, it's clearly WAY overpriced and unsustainable.

With a tightening in the credit markets almost assured, be prepared in the year ahead for sharp reversals in inflated single-family housing prices and general equity prices.

Gain more detailed insights today by visiting the Williams Analytics Blog and by downloading Williams Analytics' many FREE Indicator Reports!

The returns are in!  Baseline Analytics is pleased to announce the continued outperformance of its TrendFlex signals vs. the S&P 500 benchmark!      Learn more about Baseline Analytics, its Premium Services and very reasonable annual subscription offering.   

 

                           TrendFlex Returns vs. the S&P 500 

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                                            Cumulative returns are through 12/11/2015.

TrendFlex Allegiance performance tracking began in May, 2006. Cumulative performance is compared to a "buy and hold" strategy for the S&P500 (excluding dividends and transaction costs). Trades do not use leverage.  TrendFlex Allegiance is the longer-term signal and has averaged 2 signal changes per year.  

TFAline12112015        TFALineTrad12112015

 TrendFlex Classic performance tracking began in May, 2011. Cumulative performance is compared to a "buy and hold" strategy for the S&P 500 (excluding dividends and transaction costs). Trades do not use leverage.  TrendFlex Classic is the shorter-term signal andhas averaged 8 signal changes per year.    

TFCLine12112015         TFCTradline12112015

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