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.

Large Gap in LQD Suggests Pullback

Our LQD/IEF Ratio has gapped below its moving average.  This has signaled a pullback in equities, as can be seen in the chart below.



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Facebook at Face Value


Facebook toyed with major intermediate-term support on its Thursday rout. As noted in the chart below, support can be seen at the gap up in the mid-160's from May, and a next level of support near 150 following Facebook's late March swoon.

Here's the chart:



So not much of a surprise to see the lows where they settled on Friday, supported by a wide channel trading range (175 to 195) that starts in August of 2017.

From a valuation perspecitve, I see FB modestly overvalued at its $175 close, by about 5%, pinning fair value near $165 per share. My valuation metrics are below:


So probably not a bad level to wade into the stock, taking note of potential additional downside risk should the stock revisit its March-April lows. 

As for the assumptions in the valuation model, I have assumed a rather conservative 15% growth rate in free cashflow.  I look at growth from a long-term perspective, considering the company shifting to a more mature business model.

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TrendFlex Classic Signal Shifts to Buy

Confirming the trend shift to buy.  Entry price will be set at Monday's market open:


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TrendFlex Classic Remains on Sell Signal

As can be seen by the chart below, the TrendFlex Classic signal remains bearish.  Note the sharpness of the decline vs. its moving average.  The sell signal of 5/22 remains intact.  Hedge positions remain in place for longs.



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LQD Gap Indicator Supports Hedging Long Stock Positions

Our gap indicator showing the divergence between a ratio of LQD/SPX and its moving average, has expanded further below the moving average line.  See the chart below.


Such gaps tend to proceed a bit of profit taking in the S&P 500 (see the red dotted lines).  Interesting to note also the green dotted lines, whereby the gap is recovered (or there is a gap ABOVE the moving average), signaling a good time to be long.

Today's reading suggests that hedging long positions is in order.

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Unwinding of Tech (and Re-winding of Financials)

Today there was quite a reversal in financial stocks at the "expense" of technology.  The chart below plots a ratio of the XLF Finance SPDR vs. the XLK Technology SPDR.  Note today's surge:


What is interesting is the "fits and starts" seen over the plotted timeframe since April.  This leads us to assess that what we saw today was merely a reversion to the mean for tech, and a resumption of the uptrend (along with the broader market) for financials.

Note the smaller charts below: XLK (Tech) is settling near its 50-day moving average (not there yet so some more potential downside in store). Financials (XLF), with their strong surge moves their index back to the "up" trendline.

So in our view, just a bit of sector rotation unwiding the excesses we have seen in tech, with laggard financials catching up.  

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Thinking About the Yield Curve

Baseline Analytics checks in on a monthly basis the status of the yield curve as displayed on  StockCharts does a great job showing the yield curve dynamically, correlating it with the price of the S&P 500 since the late 1990's.  

Here's a snapshot.  You can run the dynamic activity by visiting this link.


Marc chandler wrote this interesting blog as we think about the components of the yield curve and what it's up to. Click here to see Marc's blog.

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TrendFlex Classic CR Signal

True to recent whipsaw activity (modest market setbacks followed by continuation of the uptrend), the TrendFlex Classic CR signal crossed above its moving average (rather decisively) on 11/21.  See the chart below.


A number of other indicators are flashing warnings (i.e. RSI for the S&P 500 is showing negative divergence). Caution still rules, however the TrendFlex Classic CR signal may reset following this week's market activity.



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Small Cap Relative Strength Picks Up

Small Cap stocks have lagged in relative strength versus their larger-cap brethren. Recently, however, improved market breadth has brought along a resurgence in small caps.

Note the improved relative strength in Small Cap Value (IJS) and the Russell 2000 (IWM) ETF's as a ration of the indices with the S&P 500.  Broader market participation of the small cap sector invites us to seek growth and value-oriented small cap opportunties.


IWM Snippet

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TrendFlex CR Sell Signal Remains in Effect

Opportunity to hedge long positions continues.  The SELL signal for the S&P 500 established at the market close of November 9th has a positive return of +0.8%.  See the updated chart below:


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Sell Signal TrendFlex Classic CR

At the market close of 11/8/2017, the TrendFlex Classic CR signal avoided a SELL despite an intraday dip into SELL territory.  Today, the indicator has once again turned bearish, as can be seen in the chart below.  We require a close below its moving average, so at this time the SELL signal is not a done deal, but we suspect it will be and have noted today's market close as a new SELL signal.


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Pending Sell Signal TrendFlex Classic CR

The TrendFlex Classic CR indicator is heading toward a sell signal.  It has been on a buy signal since 9/14/17.  Confirmation will be based on a close below its moving average (see red circle to the right on the chart below).



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Low Volatility ETF's

There is a growing batch of US and global low-volatility ETF's - many of which sport decent dividend yields.  See this article by David Fabian of FMD Capital Management about the "Ins and Outs of Low Volatility ETF's."

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NYSE High/Low Ratio: Time for SPX to Take a Breather

In the chart below, see the section labeled "$NYHL."  The New York Stock Exchange High/Low Ratio shows peaks and troughs which correspond to peaks and troughs in the S&P 500.  The green lines are bullish equity signals, while the red are bearish.

This scenario portends hedging longs after this recent "melt up" in equity prices.




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TrendFlex Score & TrendFlex Signals for 9/29/2017


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TrendFlex Score & TrendFlex Signals for 9/22/2017


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LQD Gap Extreme Is Growing

One of our extreme indicators is the gap in our LQD/IEF ratio vs. its moving average.  The chart below suggests that this gap, which has preceded past declines in the S&P500, may be forewarning a setback in equities.



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TrendFlex Score & TrendFlex Signals for 9/15/2017


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TrendFlex Score & TrendFlex Signals for 9/08/2017


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TrendFlex Score & TrendFlex Signals for 9/01/2017


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