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.

Baseline Analytics Market Tour Week Ending 3/20/15 - A Breadth of Fresh Highs

Baseline Analytics TrendFlex Score includes several market indicators focused on internal market strength.  These breadth indicators exhibited rather lofty jolts on Friday 3/20, hitting extremes that not only reinforce the strength of equities, but that potentially point to some frothiness in the "risk-on" trade.  The charts below depicts several measure of market breadth (all of which are variably-weighted components in the TrendFlex Score).

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The chart above is the NYSE Advance-Decline indicator. Note the strong uptrend maintained above its moving average, pushing to meet up with its high from the beginning of March. No internal weakness here.  As I was seeking published commentary on the NYSE Advance-Decline, I found a rather noteworthy analysis from Greg Schnell, particularly interesting for its chart of the 6-year cycle of the S&P 500. That cycle, which plots a market low in the mid-2015 timeframe, was drawn back in December 2013, and markets have admittedly behaved a bit more bullishly since.  Also note Greg's reference to the "80/90's period where we stay nice and strong." Something to keep in mind today.

The next chart is the High-Low Percent of the S&P 500.  This breadth indicator measures the percent of new highs of the S&P 500. It is based on a percent of net new highs (number of new highs minus number of new lows) divided by the total number (500) of stocks in the S&P 500. In all of these charts we plot the 63-day exponential moving average, essentially a three month average of the indicator. The $SPXHLP (which is a 5-day average to smooth out the variability), is reaching toward 12% (its recent high was at 14% prior to the market heights reached at the start of March).  A bearish reading of this breadth indicator is below 0 (a number of market technicians view -2 and lower as a truly cautious level for bulls).

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Our final breadth chart is the NYSE Advance-Decline Volume line.  This breadth indicator is based on Net Advancing Volume, which is the volume of advancing stocks less the volume of declining stocks. So higher-volume stocks (i.e. Walmart) have a heavier weighting in this calculation, which basically favors the large-cap stocks (the Advance-Decline line in the first chart above favors small to mid-cap stocks). Click here for a primer on AD and AD Volume indicators by Arthur Hill. 

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We look to market breadth for signals that the uptrend is losing steam.  As fewer stocks participate in a market rally, breadth will begin to flatten and decline.  Note the chart presented by Greg Morris below.  The Nasdaq Composite reached a new high in November 2007, while breadth peaked in March 2007.  

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Looking at today's chart of the Nasdaq and its A-D Line (below), it appears that 2015 is moving in the right direction, but the trend in the A-D line prior to February 2015 is a bit non-committal.

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We'll watch this one carefully to assess any continued divergence, as these market breadth indicators remain invaluable to gauging the internal strength of equities.  

Our TrendFlex Score includes four measures of market breadth.  Subscribers receive an update on the TrendFlex Score each week, as it measures the risk of a change in the market trend.

 

 

 

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Baseline Analytics Market Tour Week Ending 3/13/15

This week's 0.86% decline in the S&P 500 did modest damage to technical indicators.  A real positive on the week was the strength in small cap stocks, which have decisively outperformed the S&P 500 since early February:

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As for the S&P 500, the index appears more short-term neutral than bearish, while the long term trend remains bullish. Support centers around the 2010 to 2030 area. KST remains positive but suffers from a negative cross at the beginning of March.  VIX appears neutral, however the Put/Call ratio is rather high at 1.21 (above its 50-day moving average of 1.01) and potentially representative of a continued bounce (if not resumption of the short-term uptrend) in the S&P 500. 

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Besides small caps, outperformance has continued for other "risk-on" sectors such as technology and consumer discretionary stocks.  Visit our ETFZone page (subscription required) for our new sector relative strength studies. The next FOMC meeting in March 17-18; be prepared for more rocky activity in the markets. 

 

 

 

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Baseline Analytics Market Tour Week Ending 2/27/15

Steady going for the stock market this week, as the S&P 500 remains comfortably above its 2090 breakout area. "Known Sure Thing (KST)" remains solidly in positive territory. ITs most recent peak above 40 preceded a 5% pullback in December.  While the KST indicator sits near 30, we don't see an extreme in tis reading yet. 

Low levels of VIX tend to precede periods of complacence and risk of a setback in equities.  Vix is approaching that risky low level, falling to almost 20% below its 50-day moving average.  We'll need to watch this one: 

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 As for market breadth and internal strength, advance-declines and new highs vs. new lows remain healthy, despite weakness recently in the S&P 500 high-low ratio. Another positive continues to be the summation index, which remains firmly in bullish territory above 400 and broke above its recent high near 600:

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 Our final chart looks at macro-economic and sector relationships.  The first is the ratio of LQD (iBoxx Corporate Bond Index) vs. IEF (10-Year Treasury Bond). We have seen a recent bullish breakout in February, an impressive turn of events from the downtrend that stretched from October 2014. 

Blog02282015cAs for other economic indicators, we view copper and its ratio to Treasuries as a signal of economic strength.  This relationship has been in a bearish mode since October, but recently has seen some upside, albeit not very convincing. The major driver of this relationship is the strong dollar and its affect on commodity prices. Finally, small caps have outpaced large caps, and discretionaries are beating staples, further bullish ammunition for equities.

Bottom line, technical conditions continue to favor an emphasis on equities.

 

 

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Baseline Analytics Market Tour Week Ending 2/20/15

New highs and strong bullish indicators wrapped up this week's market activity.  There does not appear to be any noteworthy level of extreme complacence in the markets; we will view these new highs as continuing to be supportive of positive market activity.

The S&P 500 broke out of a consolidating pattern from the 2080 area and broke into the 2100's with a close at 2110. "Known Sure Thing" -KST is solidly positive, having printed a positive cross-over in late January when the S&P 500 was in the 2060 area.  VIX and Put Call, although at relatively low levels, are not quite at extreme lows that would suggest a high level of complacency and a shift to the downside in the short term trend.  See the chart below: 

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Internal market strength is supportive of the uptrend.  Note that the advance-decline ratio and new highs are positive and stretching to new indicator highs.  In addition, the NYSE Summation Index has surpassed the 400 level, commonly viewed as a bullish development, as it too confirms the strength of this uptrend: 

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Finally, our economic technical indicators are bullish.  We regularly review the price relationship between corporate bonds and intermediate Treasuries.  That relationshp is positive and has established a firm uptrend after a several-month hiatus of consolidations.  In addition, small cap stocks and consumer discretionary stocks have been outperforming large caps and consumer staples, respectively, further supporting the "risk-on" trade in equities. 

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Although some trading-range activity in the indices would not be abnormal at this stage of the bull market, we would continue to seek opportunistic long positions as the character of the stock market likely will shift to a "stock-pickers" market as the rally moves forward.  We are inclined to support bullish trades for the next 4-8 weeks with sensible stops on long positions.  

 

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Introducing an Expanded Baseline Analytics Service and Website

Dear Subscribers and Investors:

Baseline Analytics has launched an expansion of its investment services through a new and improved website.

The new look and feel of Baseline Analytics incorporates a "funnel approach" to strategic investment management, gathering thought leadership from experts on global and macro-economic issues, regional and sector opportunities, timely stocks, and asset allocation. The new website was developed from user feedback and market research indicating that more targeted research, investment and trading opportunities would be helpful to "corral the daily market noise" that tends to distract investors and lead to sub-par investment performance over time.

Baseline Analytics will continue to regularly update its subscription-based Premium Services, including updates to its TrendFlex Score and TrendFlex Signals each weekend (or more frequently as market conditions warrant), as well as selections to its StockStash and ETFZone offerings. Additional stock and ETF screens, and new Premium Services, are planned to be introduced over the coming months. 

For current subscribers, the login is located in the upper right of each webpage. You will be taken to a separate screen where you can input your Username and Password. The subscription-based services, labeled "Premium Services," can be accessed at the top toolbar via a drop down menu, where you will see listings for the TrendFlex Score, Index & ETF Signals, StockStash, ETF Zone, and additional Premium Services as they are introduced.  

Thank you for your interest in Baseline Analytics, and click here to visit the new site.

All the best,

Bob Palmerton, CMT

 

 

 

 

 

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Market Trend Update - Originally Published on October 23, 2014

Time for an update of our Baseline Analytics Market Tour.

There is no doubt that technical damage has been done to the major indices.  Although we are cautiously optimistic for year-end strength, more technical proof is needed to embrace that possibility.

As for the S&P 500, as can be seen in the chart below, the Relative Strength Index (RSI) held near the 30 area for a low, which has tended to support corrective action within long term uptrends.

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Why I Sold Today - Originally Published on June 7, 2014

On Friday, I sold a portion of my long positions in stocks.  Not too much, mind you.  All I did was to make the market pay me for my efforts in successfully identifying opportunities to profit from the market uptrend.

When the market hands you profits, take them.  At least take some of them.

Complacency is a condition that evolves typically over a timeline of several months.  It tends to manifest itself in repeated, consecutive market highs or, minimally, in a multitude of up days sprinkled with an occasional, small pullback.  When your friends start discussing stocks at casual gatherings, when margin levels start to build, when the DOW hitting new highs populates the front page of your local newspaper, complacency is starting to set in.

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