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| Eman93 4,750 posts msg #130589 - Ignore Eman93 |
8/25/2016 10:08:39 PM MW UPDATE: Four technical factors that will show the direction of the stock market 8/25/16, 4:20 PM By Michael Kahn Investors' reaction to the Federal Reserve's meeting is key Although the stock market is basically on hold until Federal Reserve head Janet Yellen addresses the masses (http://www.marketwatch.com/story/fed-going-out-to-jackson-hole-to-get-divorce-from-markets-2016-08-23) Aug. 26 in Jackson Hole, Wyo., it pays to watch a few key bits of data generously provided by the market itself. Traders will no doubt react quickly on a hint that the Fed will or will not once again raise short-term interest rates and when that might happen. However, it will be the market that tells us how all of that will play out past the initial knee-jerk reactions. Specifically, there are four ratios on the charts that hold the key, and each has to do with the market's mood for risk. They are small-capitalization stocks vs. large stocks, emerging markets vs. the U.S., copper vs. gold, and junk bonds vs. high-grade corporate bonds. Let's start with the ratio familiar to most investors, small caps vs. large caps. Typically we look at a ratio of the Russell 2000 to the S&P 500. When investors feel good and are more amenable to take risks in the stock market, this ratio moves higher. Small-caps outperform large caps, and many believe this is a necessary condition for a healthy bull market. Currently, this ratio is quite strong and has been most of the year: We can apply many technical studies to a ratio as easily as we can to individual stocks or indexes. While we do not want to get too fancy, we can rely on the basic analyses of trendlines and momentum indicators. As we can see in the chart, the trend is clear to the upside since February. It is above its major moving averages -- the 50- and 200-day -- which is bullish. And momentum, as indicated by most popular technical studies, is strong but not overbought. All of these factors tell us that small-caps are back in favor. The worry is that the ratio is already at resistance from turning points over the past few years and the trendline from early 2014 is nearby. Again, I don't want to place too much meaning on these factors, but they do exist and that suggests the ratio is at a crossroads. Conveniently, Yellen's speech will happen at the right time to spark either a breakout or a downside reversal. Which one occurs will be very important going forward. The next ratio is emerging markets to the world, and we can chart it using the iShares MSCI Emerging Markets ETF (EEM) divided by the SPDR S&P 500 ETF Trust (SPY). This ratio has been falling since 2010, so emerging markets have indeed suffered relative to the domestic market. However, the ratio started to rally in January and recently broke out to a 10-month high: It also moved above its major moving averages, so it is quite possible that the tide has turned and the bear market is over. The ratio currently sits on a short-term rising trendline from May. Should it continue lower to break that trendline, then we can conclude that bullishness in emerging markets may have been premature. And as with the Russell 2000 ratio above, should this ratio bounce off that trendline and head higher, then the chances for a sustained rally increase. When emerging markets outperform the U.S., we surmise the market is feeling feisty and willing to take more risks. Again, that is a characteristic of a healthy bull. The copper-to-gold ratio is interesting for two reasons. First, commodities in general tend to move inversely to the U.S. dollar as they are priced in dollars. A ratio of two metals naturally removes the dollar from consideration since both numerator and denominator are affected. However, the real reason to look at this ratio is that copper represents economic activity while gold represents hedging. Strong copper suggests more copper pipes for housing and more copper wires for manufacturing. Therefore, high demand and rising prices for copper from a strong economy are better than high demand for gold from nervous investors. Currently, the ratio as represented by the iPath Bloomberg Copper Subindex Total Return ETN (JJC) divided by the SPDR Gold Trust (GLD) is still in a vicious bear decline: The latest leg of this decline started more than a year ago and it took the ratio below its major 2008 low at the bottom of the commodities debacle that year. This year, while stocks managed to rally to all-time highs even as this economic indicator fell to new lows, it would seem that it is a condition that cannot continue forever. Either copper picks itself up or stocks could fall. However, there are no technical indications on the charts that suggest the bearish trend is in any danger at this time. That is why it is very important to see if it reacts after Yellen's speech. If the Fed thinks the economy is strong enough for a rate hike but copper continues to fall both on an absolute basis and relative to gold, then something is likely to be wrong. When words and markets disagree, it is usually the market that is right. Finally, the ratio of junk, or high-yield, corporate bonds to quality corporate bonds can round out the quartet of risk-watching measures. As with the stock market ratios, when riskier junk bonds outperform safer high-grade bonds, we know the market is feeling more bullish. Right now, the ratio of the SPDR Barclays High-Yield Bond ETF (JNK) to the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is trading flat or sideways. (Please see below.) It did rally off very low levels starting in February but within a few weeks, it stalled. The reasons why this happened are not evident on the charts, but the pattern it left for us is quite useful. When the ratio finally starts to move one way or the other, it should become evident fairly quickly. A move higher would tell us investors are willing to take on more risk. A move lower would, of course, indicate the opposite. All four ratios are themes and variations on the market's risk-aversion profile. Since they originate in stock, commodity and bond markets, they give us a good indication of the overall condition, and that will help us interpret what Janet Yellen's words really mean beyond the surface jargon. -Michael Kahn; 415-439-6400; AskNewswires@dowjones.com (END) Dow Jones Newswires 08-25-16 1620ET |
| johnpaulca 12,036 posts msg #130593 - Ignore johnpaulca |
8/26/2016 12:06:42 AM Thanks for the article Eman!! AG($13.49)....keep an eye out for this bad boy, looking to buy this and hold long term. Some support on daily is at $12.58, I will wait for gold futures to turn up and weakened dolla. |
| Eman93 4,750 posts msg #130596 - Ignore Eman93 |
8/26/2016 9:17:40 AM I like the gold copper ratio. Got to figure out how to chart the ratio. |
| johnpaulca 12,036 posts msg #130597 - Ignore johnpaulca |
8/26/2016 9:48:52 AM Eman93 4,548 posts msg #130596 - Ignore Eman93 8/26/2016 9:17:40 AM I like the gold copper ratio. Got to figure out how to chart the ratio **************************************************************************************** the ratio would now have you long Cu(copper) and short Au(gold) |
| Eman93 4,750 posts msg #130599 - Ignore Eman93 |
8/26/2016 11:10:29 AM fcx best of both worlds! |
| Kevin_in_GA 4,599 posts msg #130602 - Ignore Kevin_in_GA modified |
8/26/2016 12:41:27 PM 8/18/2016 7:16:46 PM Also jumped in on 1000 shares of VXX @ $36.14 based on another set of VIX filters I have developed. These typically trade at 90% win rates but it takes several weeks on average to close out the trades. Out at $37.26 for a gain of $1111 after commissions. I entered a new position in XIV at 12:12 PM (1000 shares at $36.00). This is based on a set of long-short filters for the ^VIX. Positions usually are held for a few weeks but I might opt to take profit before then. |
| Kevin_in_GA 4,599 posts msg #130603 - Ignore Kevin_in_GA |
8/26/2016 1:56:21 PM Long FCX 1000 shares @ $11.00. This is a Pangolin Z selection. I also bought into another Pangolin Z selection this morning (NEM, long 200 shares at $39.80, out later this morning at $41.20). Nice day so far, except for that pesky GOGO short ... |
| Kevin_in_GA 4,599 posts msg #130605 - Ignore Kevin_in_GA |
8/26/2016 2:12:08 PM Another Pangolin Z selection - long 250 shares of STJ at $76.00. |
| johnpaulca 12,036 posts msg #130607 - Ignore johnpaulca |
8/26/2016 2:27:44 PM Kevin.....scalping the oversold bounces with lot's of volatility you can make a killing...glty. |
| Kevin_in_GA 4,599 posts msg #130608 - Ignore Kevin_in_GA |
8/26/2016 2:39:39 PM Or it can hurt you. These are not really scalps - Pangolin Z typically trades over 7-8 days so they are swing trades for a few percent. If it comes early I will take it, though. Jumped out of VXX too soon, but that was the signal. Interestingly, the VIX system I am using will have quite frequently have you holding differing amounts of both VXX and XIV, trading each separately. Both the long and short filters are highly profitable against the VIX, but it is hard to find an ETF that actually tracks the VIX accurately over short periods of a month or less. |
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