TrendFlex Score Updtade -- 7/27/2015

The TrendFlex Score jumped from 2.13 to 2.42 following Monday's close, suggesting that the equity markets are ripe for a bounce.  This level of the score has in the past coincided with a resumption in the short-term uptrend.  We caution however that any bounce may be followed by resistance pressure from traders looking for an exit, as we may simply see a "tradeable rally."

TFS07272015  

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Swing Trade Gold? -- 7/26/2015

Baseline Analytics runs a collection of 54 system tests to find the top-performing four systems for various ETF's over the year-to-date timeframe.

We ran GLD (the SPDR Gold Trust Shares) and the top-performing four systems all flashed BUY signals.  These signals were generated as early as the market close on 7/16 and as late as the market close on 7/23 (when 2 of the 4 flashed a BUY signal).

Per the chart below, note GLD's surge on Friday. A few maybe smart contrarians stepped in to buy.

GLDDaily

But then look at the weekly chart.  Feels more like the falling knife scenario.

GLDweekly

Finally, bringing in our Italian mathematician Leonardo Fibonacci (also known as Leonardo of Pisa and Leonardo Pisano Bigollo - I guess if your system does not work you can hide under a different name), the monthly chart shows GLD closing in on the 61.8% retracement drawn from the peak in mid-2011 to the low in 2005, at a price of 94. GLD closed on Friday at 105.35, but perhaps we are close enough to that low to warrant partial long positions.

GLD Monthly 

If you decide to bit the golden bullet, mind the large gap between 106.50 and 108.50.  Also are be prepared to get hit by those traders that bought near the bottom on 7/24, looking to get out with your purchase.  

GLD60

Gold has come a long way from its peak in 2011.  But price carnage like this awakens the opportunistic traders (and long term investors). It is worth watching GLD as well as GDX and the various gold miner ETF's.

 

 

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TrendFlex Score & TrendFlex Signals for 7/24/2015

Equity markets continue their wide trading range. One noteworthy development is the shift in the S&P 500 "High-Low" percentage, which dipped into negative territory with Friday's close and nearly matches the low reached in October, 2014.  Both TrendFlex Classic and Allegiance signals weakened following this week's 2.21% decline in the S&P 500.    The Classic score shifted from neutral to bearish, although the S&P 500 remains in a wide-ranging trading range.  Our Classic signal may shift to Downtrend pending Monday's activity. The Allegiance score increased slightly (a bearish development) but remains in Uptrend.  

TrendFlex Signal Trend Signal Date Performance
TrendFlex Classic Uptrend 05/15/15 -2.0%
TrendFlex Allegiance Uptrend  11/03/14  +3.0% 

The TrendFlex Score incraeased from 1.98 to 2.13  and closed above its three-week moving average, a bearish development. 

TFS07242015  

 The Portfolio Options Table remains bullish but increasingly cautious.  We recommend keeping stops in place and raising income with covered call writing on profitable holdings.  

POT07242015 

Click here for the cumulative returns and trade history for the Baseline Analytics TrendFlex systems since their initial trades

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Index & ETF Signals - 07/31/2015 Update

Major indices remain on Uptrend. GDX appears to be forming a new bottom. EEM (Emerging Markets) continue to struggle.  

 

ETF Today Week Ending 7/24/15 Comments
SPY Uptrend Uptrend Bounce on modest volume
DIA Uptrend Neutral

Dow retakes its 200-day moving average

QQQ Uptrend Uptrend Settles back from new highs
IWM Neutral Neutral Small Caps weaken
VGK Uptrend Uptrend  Uptrend continues depite recent pullback
EEM Downtrend Neutral Emerging markets struggle to find support
GDX Neutral Downtrend GDX turns neutral; bottoming action looks interesting
TLT Neutral Neutral TLT bounces from support
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A Cycle of Financial Fragility?

Margin LoansWritten by Greg Hannsgen for the Levy Economics Institute.       Can a bull market founded largely on credit survive? A forthcoming Levy Institute working paper I wrote with Tai Young-Taft of Bard College at Simon’s Rock (link for those interested) represents an attempt to deal with the role of financial instability—along with other sources of economic fluctuations—in the dynamics of the economy.

Here, I’ll focus mostly on the role of margin loans that are used by many investors and traders to leverage positions in stock. The model developed in the paper includes a role for several policy tools that might be used in attempts to stabilize the economy: a fiscal-policy rule with public production and unemployment rate targets, along with public-sector R&D, financial supervision and regulation, and a target for the inflation-adjusted interest rate on government debt.  

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Baseline Analytics Market Tour Update - June 16, 2015

Time to revisit some of the key technical indicators followed by Baseline Analytics to try to make some sense of current market activity.  

As can be seen in the chart below, the S&P 500 broke to the downside through an uptrend extending from December. Recent trading range activity can be broken with a close above 2120.  2080 marks next downside support, with the 2050 area to follow.

Pring's "Known Sure Thing" or KST dipped to negative (bearish) territory during these last few weeks, however, that does not differ much from a similar visit to negative readings in April.  VIX and Put/Call are rather neutral with some mild bouts of excitedness.

MT06162015a

The breadth and internal strength charts (below) are rather neutral, coming off some impressive short term highs. The one concern in this chart is the NYSE Summation Index.  The "400 line" has market bull and bear ranges rather effectively, and this reading has dipped to an extreme (-200) not seen since the 10%+ correction last October.  This indicator bears watching, as it has generally diverged from the uptrend in the S&P 500 since mid-April. 

MT06162015b

Finally, our economic chart contributes a rather neutral perspective on the bull market.  Our bond ratio chart (top portion of the chart below) has settled at support (we normally look for corporate debt to outperform Treasuries as a bullish signal).  Copper vs. Treasuries is also meandering in the doldrums (attempting to break through its 200-day moving average). Copper price is a proxy for economic strength, as the metal is utilized in a variety of industries.  Strength in copper vs. Treasuries again is a sign of positive economic conditions and stock market momentum.  The strong dolar however could be the major cause of copper's weakness.  

We also look at  a ratio of Small Caps vs. Large Caps to assess the broadness of participation in the market trend; a rising ratio suggests increased tolerance for risk and desire to own stocks.  This ratio is rising, a bullish sign. The XLY:XLP ratio tracks the relative performance of Consumer Discretionary stocks vs. Consumer Staples, the former expected to outpace the latter as the economy strengthens.  This ratio is also rising, favoring the risk-on trade.

MT06162015c

In a nutshell, mixed signals underscoring the trading-range character of this market.  Although this recent setback has mirrored other dips along the uptrend, the flattening out of the S&P 500 feels like a potential seasonal topping pattern, one that should not be taken lightly.  It will be interesting to see how the indicators behave should the S&P 500 once again break out to new highs (will they follow the uptrend or diverge)?

 

 

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Mind the Gap - A Visually Compelling Market Timing Signal

At Baseline Analytics, we are on the lookout for profitable (and often unexplainable) technical relationships between peaks and troughs of various market indices and indicators.  Here's one worth mentioning:

One of our TrendFlex indicators is the ratio LQD, the iShares IBOXX Investment Grade Corporate Bond Index, vs. the S&P 500.  We compare the trendline of that ratio to its 34-day exponential moving average.  That comparison gives us our compelling "peak and trough" story."

Note the chart below.  The bottom portion of the chart displays the LDQ:SPX ratio (the top part is the S&P 500). Focusing on the LDQ:SPX ratio, green lines show where the ratio exceeded its moving average at various peak levels. Note that such a peak coincided with a bullish bounce in the S&P 500. Conversely, blue lines show a trough in the ratio, and correspond to a bearish trend change in the S&P 500.

 SPXLQDGap

Today's decline in the S&P 500 (.77% so far) was preceded by a trough in the ratio, as history would suggest.  I won't draw any rationales from this relationship, but just to point out that the consistent performance of this phenomenon can help hedge long or short positions as an overall portfolio management strategy.

Please take a moment to learn about  Baseline Analytics' Premium Services and its thought leadership offerings on Global, Regional and Sector trading and investing opportunities.

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The Interest Rate Dance

Written by David Fabian of FMD Capital Management.     The current rise in interest rates has an eerily-similar feeling to the panic and frustration after the Fed’s surprise announcement to taper quantitative easing in 2013.  Just like then, the bond market is reacting more to the thought of a change in Fed policy and not the change itself.  Investors should always remember that the  markets are not logical, they are psychological.  So with the strong non-farm payroll numbers that were released this morning, there is renewed anticipation that the Fed will be forced to hike in October, instead of the first quarter of 2016.

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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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