Baseline Analytics Blog

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

One of the key indicators developed and tracked by Baseline Analytics is the TrendFlex Score.  This indicator has influenced the trading and investment strategies of our subscribers since its founding in 2011.

The TrendFlex Score was developed following an extensive analysis of select technical, fundamental and economic indicators correlated with performance to the S&P 500.

The following key components calculate the TrendFlex Score: 

  • Technical Index Reviews (S&P 500, Dow, Nasdaq)
  • Internal Market Strength (i.e. Price and Earnings Momentum)
  • Market Psychology
  • Economic Sector Relative Earnings Strength
  • Credit spreads (Government vs. Corporate)
  • Intermarket Relationships (bonds, commodities, stocks) and relative risk premiums
  • Style (small cap, large cap, value and growth)

These indicators have been weighted based on back-tested results.  The resulting TrendFlex Score tends to range between 1.30 and 2.60. High scores coincide with bearish market trends. Low scores, conversely, associate themselves with bullish trends.

The signal for a trend change is denoted by the TrendFlex Score crossing above or below its three-week moving average.  In the chart below, the TrendFlex Score is plotted as an oscillator around the "0" line, denoting when the score crosses above or below its three-week moving average.   

TFS Historic

Note in the chart above how the TrendFlex Score bars fall below the "0" line in uptrends, and the converse in downtrends.  Baseline Analytics utilizes these signals to establish short-term bullish or bearish positions in equities.  As a simple hedging strategy, a long portfolio can be hedged with a short position in the S&P 500 e-mini futures, when the TrendFlex Score (bar) falls below its three-week moving average ("0" signal line).

The weekly updates provided by Baseline Analytics depict the TrendFlex Score in the following chart, which shows the absolute value of the TrendFlex Score plotted with the S&P 500::

TFS10302015

Note that in the October 2015 rally, the TrendFlex Score crossed below its three-week moving average (the "signal" line). 

As you can see, TrendFlex Scores in the 1.30 area tend to precede selloffs in the S&P 500, while scores generally higher than 2.0 tend to precede rallies in the S&P 500.

Note the recent peaks in the TrendFlex Scores settling over 2.0 in August, and the rally that followed.  The TrendFlex Score is calculated on a weekly basis, following Friday's market close, and reported in the weekly Baseline Analytics update prior to the market open the following Monday (most updates are completed on Sundays). The TrendFlex Score may be updated more frequently as market conditions warrant.

Investors utilize the TrendFlex Score as a gauge to assess a risk to a change in the short-term market trend, and as a condition to initiate a hedge to a long (or short) market portfolio.  For example, many of our subscribers retain a long-term horizon, with occasional speculative positions, including long and short options and futures. 

Visit our Premium Services overview page for more information and performance results on the Baseline Analytics TrendFlex Score and signals. 

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Baseline Analytics updates its TrendFlex family of market trend risk-assessment indicators prior to the market open of each new week, or more frequently as market conditions warrant. 

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Not much to complain about on this chart.  

Technical indicators are positive across the board (if not a bit over-played).  The S&P 500 finds decent support above its 200-day moving average, after breaking through two levels of noteworthy resistance (2000 and 2050).

"Known Sure Thing" (KST) closed above the Bull/Bear "0" mark decisively a couple of weeks ago.  Although VIX looks extended on the downside (a sign of complacency as the crowd follows the upswing in equities), stochastics show that overbought conditions can subsist for a while.

Next stop is to breach the summer highs.  

Wouldn't mind a little cautious diversification (more $$ to bonds?) at this juncture!

 

blog102815

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

As a brief preview, US housing indicators are still showing a slowing housing market whose improvement continues but at a decreasing pace. This view is consistent across most measures of housing market health and provides strong evidence that the housing market has little upside room in the coming year ahead.

With respect to asset prices, Williams Analytics is currently predicting a continued disconnect between the housing market and S&P 500 E-mini and 10-Year US Treasury Note front month futures prices. This means that "good" housing news is not always considered "good" by the equity and treasury markets.

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 credit market and what could be in store for the S&P 500 E-mini and 10-Year US Treasury Note.

As a brief preview, US credit market indicators are showing confusion as to whether credit market dysfunction will continue declining or, instead, increase over the next 12 months. Treasury and Swap markets say all is ok; corporate paper markets, on the other hand, disagree.

With respect to asset prices, Williams Analytics is currently predicting that underpricing will continue to worsen for the S&P 500 E-mini, relative to the WA Broad Equity Index. Conversely, the 10-Treasury Note is anticipated to mostly close its underpricing gap with the WA Broad Treasury Index, mainly during mid-2016.

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

Written By Aman Khatwani.    

Copper has been in a falling trend for the past six months given the economic slowdown in China and the stronger US Dollar, however tides are likely to change for Copper. Copper has done well to make a double bottom formation at the $2.25 making five successful trading days closing above the level. The commodity has recovered to $2.40 levels and is likely to continue its successful run up to $2.60 (200-DMA).

Copper

One of the major things going for the commodity is the momentum-based indicators with the weekly RSI moving above the 40 levels decisively for the first time in six months. With the daily above 40 and the quarterly charts bouncing from the 40-levels, the strength is likely to support the rally. Additionally, the buy signal on the daily and weekly MACD is likely to aid it too.

However, this rally will not be a very strong move on the upside given the weak set-up (200-DMA above the 50-DMA) and the resistance that is likely to hold the commodity back. The commodity may retrace at $2.45 levels, breaking which will gain to the $2.60 levels.

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, US macroeconomic indicators are continuing to show strength in the face of a slowing economy with Real Personal Income and Real Retail Sales conforming nicely to their long term, mostly-linear trends. Yet, as noted in the blog post, there are concerns about declining momentum in Real Personal Income that needs to be watched in the coming months.

With respect to asset prices, Williams Analytics is currently predicting an increased level of volatility in the S&P 500 E-mini with strong price whipsaws anticipated during the next few months. We are also still anticipating a "U"- or "W"- Shaped price pattern for the 10-Year. Momentum is expected to decline for both the S&P and 10-Year in the coming months.

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

The S&P 500 has gained 8% since its closing low on August 25th.  Since then, it has breached the psychologically important 2000 resistance level.  Here are a few technical considerations as we characterize the next move in equities.  See the chart below.  

Relative Strength Index (RSI).  RSI dipped to a "correction low" near 20 during the heat of the late August selloff (see the top portion of the chart).  RSI had not bridged that level at all for the previous 12 months, part of which comprised the October 2014 swoon during the Ebola virus outbreak, when its decline stopped near 30.  RSI at 60 is mildly overbought within a corrective phase.

blog101215b

 

Known Sure Thing (KST), developed by Martin Pring, closed below 0 at the August selloff, and has meandered higher since bottoming in September, to close at a recent -9 (still in bearish territory but with an encouraging comeback).  A negative reading in KST has generally accompanied equity downtrends.  

Both Vix and Put/Call (our proxies for sentiment measures) have settled back from extreme fear readings, and now suggest increased complacency.  Both indicators closed  below their respective 50-day moving averages at "quiet" levels. These contrary indicators are worth heeding as potential warning signs on the young age of this bounce.

Stochastics flash the more disturbing signal.  These are useful momentum indicators during sidways markets, as one can argue that the market has been flat (albeit volatile) in a wide-ranging 1870-2000 path.  Stochastics are currently overbought and ripe for likely trading range behavior, if not another downward leg.

As for the S&P 500 price action, an attractive milestone was its close back above the 2000 resistance level.  As the chart suggests, however, further resistance looms near 2040.

So the indicators lean on the neutral-to-bearish (short-term) side as equities struggle to gain a firm foothold.

Baseline Analytics ran its bearish resistance scans and found over 60 equities and ETF's that have closed at resistance levels and may have extended their bounces from the August lows.

 

SMH is one such item. The ETF has settled back from its 200-day moving average while RSI settles back from a recent high.

 

smh 10092015

 

Subscribers can access the entire list as well as other recent scans and Baseline Analytics TrendFlex family of market timing signals.

For more information, visit Baseline Analytics.  And don't forget to sign up for our Free Trial!

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, US labor market indicators are continuing to predict a slowing of the labor market's recovery. While measures such as Employment, U3, and U6 are expected to improve, the pace of the improvement is anticipated to decline sharply in the coming year.

With respect to asset prices, Williams Analytics is currently predicting a leveling off in the S&P 500 E-mini and a "U"-Shaped price pattern for the 10-Year. Interestingly, and despite these overall trends, the US labor market is expected to have a positive *incremental* influence on the S&P 500 E-mini and 10-Year Note.

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

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