Baseline Analytics Blog

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

Great Graphic: S&P and Oil--Conjoined Twins or Distant Cousins that Sometimes Look Alike?

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.  

 

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Strong Drop Expected in S&P 500 w/ 10-Year Slightly Manic

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!

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"Gap Trade" and Shifts in the Market Trend - Bounce Opportunity?

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

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"Gap Trade" and Shifts in the Market Trend - Bounce Opportunity?

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

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Baseline Analytics Market Tour Update - 1/8/16

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.

 

 

 

 

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Labor Market Recovery Still Has Legs but w/ S&P Hindered by Declining Momentum

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!

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Housing Prices Unsustainably Rocketing Past Fundamentals w/ S&P 500 Bubbly

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!

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TrendFlex Signal Returns Updated through 12/11/15 - Up To 3X Outperformance vs. the S&P 500

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 

TFR12112015

        TFR12112015Trad

            ClassicDesc2      TradDesc

                                            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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Market Tour Update from Baseline Analytics

Topsy-turvy trading activity continues as volatility shakes up the recent highs established in November and December.

The S&P 500 sits at major support near 2050; as seen in the chart below, that level has held declines in March, April and July, with next support levels at 2020 and 2000.

Martin Pring's "Known Sure Thing," or KST, clearly supported the recent rallies but has now settle back near the bull-bear dividing line near 0.

 

MTU 12112015

 

VIX has seen a recent jump (above its 50-day moving average) but remains at a modestly elevated level, not an extreme high that would precede a resumption of a firm uptrend (we have written often here at Baseline Analytics that extreme readings in VIX versus its 50-day moving average tend to precede trend shifts).

But it is interesting to note that the Put/Call ratio is displaying an extreme with its close at 1.25.  Note the green line in the $CPC portion of the chart: although less reliable that the VIX indicator, the Put/Call reading speaks of a potential move up in stocks.

Finally, stochastics (which come in handy during trading range markets like this) are moving toward oversold levels but have not quite yet arrived at that point.

The market is nervous and volatility as seen in rallies and sell-offs is the character of the day.  As David Fabian has written recently (see our Asset Allocation blog), it may be better to sit on our hands during December.

 

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Labor Market Growth Still Slowing with 10-Year Underpricing Expected to Revert

The Williams Analytics LLC Blog has just posted a new article on the state of the US credit markets 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 still showing positive gains throughout the year ahead but with slowing momentum. This view is consistent across most measures of labor market health and provides evidence that the lion's share of labor market gains are behind us.

With respect to asset prices, the S&P 500 E-mini is expected to continue to become increasingly underpriced, relative to other equity indexes. Conversely, the 10-Year's historical underpricing (relative to other US Treasuries) is expected to revert significantly in the coming year ahead.

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

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Housing Expectations Not Exciting but Should Positively Impact Asset Prices

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

As a brief preview, we are anticipating a slowing in the housing market recovery with momentum declining across most housing measures. To be sure, housing measures such as new units under construction, units for sale, and so on are anticipated to increase in the coming year. It's just that the pace of said increases is expected to be slower than in the past.

With respect to asset prices, the S&P 500 E-mini and 10-Year US Treasury note front month futures contracts are expected to be positively biased by future housing market evolutions over the next year with minor exceptions.

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

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Credit Markets All Over the Place w/ S&P Disconnected from Fundamentals

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

As a brief preview, we are anticipating a slight increase in intermediate term yield spreads. This implies that credit markets may be pricing in credit market and macroeconomic dysfunction in the intermediate term. At the same time, there are quite a few warning bells being rung in the credit markets with the resurgence of corporate paper spreads, the decline of Treasury and Swap yield slopes, and the inversion of Swap-Treasury Spreads.

With respect to asset prices, the S&P 500 E-mini is showing a strong and increasing disconnect with credit market fundamentals. The 10-Year, on the other hand, is anticipated to re-couple with measures of credit and macroeconomic health. Of course, the changing relationships predicted by our models should be a warning that change is afoot.

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

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Charting the way for the S&P 500

The S&P 500 is at a very crucial juncture having corrected from a high of 2116 to 2023 in a span of 8 trading sessions. This also coincides with the 38.2% retracement of the previous major move (from 1872 to 2116). On 11/16 the market showed a strong recovery following expectations of more stimuli from the ECB – the market rallied 1.53% to close at 2053 causing a bullish engulfing pattern on the price chart. This also coincided with a bounce on the RSI 40-levels.

b2ap3_thumbnail_SP-500-index-11-17.JPG

Using momentum-based indicators, a short-term bounce could be expected, however the longer-term charts suggest that a corrective move may be in play. Based on the monthly chart, a significant RSI divergence to price, but the strength on the quarterly is likely to hold the market from deep corrections. The MACD on daily and monthly are in a sell suggesting that this recovery will be short-lived.

In the interim, the market could rally to 2060-levels, breaking which 2078 (61.8% retracement) and 2094 (76.4% retracement) is possible. It could be expected that the market continues the short-term recovery before making a lower top and continuing a correction in this secular Bull Run. 

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What's Up with MFLX?

Multi Fineline Electronix has emerged repeatedly in the Baseline Analytics Wrapper Value Stock Report. 

The provider of engineering, design, and manufacture of flexible printed circuit boards and related component assemblies for the electronics industry sports several value-based fundamental criteria that earned it a "value" classification in the value stock list that Baseline Analytics uses to run its daily screeners.  After combing through our value stock list, Baseline Analytics' screeners search for technical criteria to pinpoint those value opportunities that may represent an attractive entry point.

Here are some of the key value-based criteria that look interesting about MFLX:

  • PEG Ratio of .76
  • Trailing PE of 3; Forward PE of 12
  • Increasing earnings estimates and a record of beating EPS estimates over the last 4 quarters.

In recent news,  MFLX reported Net Income of $13.7 million, or $0.54 per diluted share, an increase of 131 percent from $5.9 million, or $0.24 per diluted share, in the same period last year.  As reported by Yahoo Finance, Reza Meshgin, Chief Executive Officer of MFLEX, commented, "With outstanding operational execution during the third quarter, we achieved our fifth consecutive quarter of strong profitability with earnings per share more than doubling year-over-year.  We saw a sequential increase in net sales driven by new programs that ramped during the third quarter.  Gross margin also increased sequentially and exceeded our guidance range as we effectively managed the launch and ramp of these new programs.  Additionally, we generated strong cash flows during the quarter, growing our cash position to $168.5 million, an all-time high for MFLEX."

As for screener results, we look for stocks that have liquid trading volume and are priced in a "Bullish" zone.  Our next step is to deliver this screened list in our "volume surge" format, which highlights volume and price activity over recent, multiple timeframes.  In addition, technical criteria such as RSI and ADX are identified to help hone the list to those with more attractive technical features. Here is a current chart of MFLX and some technical highlights:

mflx111715

MFLX rose to the top of our value wrapper list recently, and we highlighted MFLX in our "call-out" list from November 9th. 

Gems such as MFLX pop up all the time.  Subscribers to BLA can download the Excel list wrapper report and review at their leisure (links to further research are provided).  Bottom line, our service streamlines your investment analysis by delivering targeted opportunities to your desktop on a regular basis.

Click here to review our Premium services and see how we compare to the competition!  We trust that you will be surprised at the breadth of services, and the price! 

 

 

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Macro Growth Showing Mixed Signals; S&P Clearly In a Bubble

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, Real Personal Income and Real Retail sales are anticipated to increase in the coming year. Yet, while Real Personal Income is showing a clear decline in its momentum, Real Retail Sales are currently expected to experience a brief, year-over-year resurgence during the Holiday shopping season.

With respect to asset prices, the S&P 500 E-mini is showing a MASSIVE amount of overpricing, relative to the Williams Analytics Broad Asset Index. This overpricing is not seen in the 10-Year, despite the 10-Year's generally-positive price trend, making the S&P's dislocation all the more apparent. No other single word better describes the S&P 500 E-mini's price relationship better than "bubble".

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

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New Stock Scan Wrapper Report Posted - Growth Leaders

excelBaseline Analytics has posted a new stock scan wrapper report.  Each evening, Baseline Analytics scans over 6,000 equities and ETF's to identify timely entry conditions based on a variety of technical criteria.  The resulting list is filtered to present investment ideas focused on the themes of Growth, Value or Dividends.

The stocks are liquid (no thinly-traded instuments here) and are presented in our Volume Surge report format as a downloadable Excel report, instructions as to how to profit from the screen are included.

Click here to subscribe!  Learn more about Baseline Analytics TrendFlex Signals and Premium Services!

Best Regards,

Baseline Analytics

 

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New Stock Scan Wrapper Report Posted - Growth Leaders

excelBaseline Analytics has posted a new stock scan wrapper report.  Each evening, Baseline Analytics scans over 6,000 equities and ETF's to identify timely entry conditions based on a variety of technical criteria.  The resulting list is filtered to present investment ideas focused on the themes of Growth, Value or Dividends.

The stocks are liquid (no thinly-traded instuments here) and are presented in our Volume Surge report format as a downloadable Excel report, instructions as to how to profit from the screen are included.

Click here to subscribe!  Learn more about Baseline Analytics TrendFlex Signals and Premium Services!

Best Regards,

Baseline Analytics

 

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Labor Market Recover Meandering and Slowing Asset Price Momentum

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 still showing positive gains throughout the year ahead but with slowing momentum. This view is consistent across most measures of labor market health and provides evidence that the lion's share of labor market gains are behind us.

With respect to asset prices, Williams Analytics is currently predicting a November drop and subsequent recovery in the S&P 500 E-mini. We are still anticipating a "V"-shaped price pattern for the 10-Year US Treasury Note over the coming year.

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

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What's All The Buzz About The Baseline Analytics TrendFlex Score?

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. 

Our Halloween Special offers a 50% discount on all Baseline Analytics Premium Services.   Act fast, as it expires soon!

 

 

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Scary 50% Off on ALL Baseline Analytics Subscriptions - Ending Soon!

50% OFF All Premium Service Subscriptions through 11:59:59pm 11/2/15!!

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. 

Be sure to check out our expanding Premium Services, including SignalSelect, StockStash, and ETF Zone selections, and our new Asset Allocation model. Our low risk subscriptions provide access to all of the Baseline Analytics Premium Services.

Click here to subscribe!

Thank you for subscribing to Baseline Analytics TrendFlex!

Best Regards, and Welcome to this week’s New Subscribers!

Baseline Analytics

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