S&P 500 Index 1833
By Steve Blumenthal
January 8, 2014
In this week’s piece, along with the usual charts, I include an interesting chart showing the correlation between the growth in the Fed’s balance sheet, the S&P 500 Index and Gold. The correlation in gold broke in 2013. For investors chasing out of commodities and metals, a disciplined quarterly or annual asset allocation rebalance might make far better sense.
Included in this week’s update:
- Sentiment Charts – Extreme Optimism Remains: Protect/Hedge Equity Portfolio Exposure
- Cyclical Bull or Cyclical Bear Market Trend Charts – Both Trend Charts Remain Bullish
- The Cyclical Trend for Bonds – Both Trend Charts Remain Bearish
- Ten Year Bond Yields Rising to 3.75% Probable
- Federal Reserve Assets, S&P 500 Index and Gold
Investment Sentiment charts 1-7-2014:
Sentiment Chart 1 – NDR Crowd Sentiment Poll – Extreme Optimism: Protect/Hedge Long Equity Portfolio Exposure
Last week’s reading of 72.9 was the fourth highest reading since 1995. To shout caution is an understatement. Though try telling that to your friend at the cocktail party. One week later (today), investor sentiment remains in the Extreme Optimism zone. Note the market movement at past peak readings (red arrow). A correction remains highly probable.
If you are a new reader, the gray area highlights the historical market performance when Investor Sentiment, as measured by Ned Davis Research, moves into the Extreme Optimism (Bearish) zone (above the dotted black line or a reading of 66).
Sentiment Chart 2 – NDR Daily Trading Sentiment Composite –Extreme Optimism remains
Cyclical Equity Market Trend Charts – Both Trend Charts Remain Bullish
Cyclical Trend Chart 1 – 13/34-Week EMA – The cyclical bull market’s uptrend remains in place. Note the blue 13-week EMA line remains above the red 34-week EMA line. Also note how well this simple, tactical indicator has historically captured the cyclical bull and bear market trends. Signals occur when the lines cross.
Cyclical Trend Chart 2 – Big Mo continues to signal a bullish uptrend for the market. Note the 84.6% Profitable Long Trades and the Gain/Annum when “Bullish” investing in the S&P 500 Index and the “Switch” to cash on Bearish readings. While no process is perfect, this is a chart I have favored for many years. Keep an eye on this chart.
The Cyclical Bond Market Trend Charts – both trend charts are bearish (interest rates are rising)
10-Year Government Bond Chart
The current 10-year Treasury Note yield is 2.993% (red arrow above). The 13-week EMA is the blue line and the 34-week EMA is the red line. Trend change occurs when the lines cross. Rates are in a rising uptrend. This is bearish for bonds. Upside target is 3.30% then 3.75%. Downside target is 2.25%.
30-Year Government Bond Chart
The current 30-year Treasury Note yield is 3.903% (red arrow). The 13-week EMA is the blue line and the 34-week EMA is the red line. Trend change occurs when the lines cross. Rates are in a rising uptrend. This is bearish for bonds. Upside target is 4.20% then 4.75%. Downside target is 3.40%.
Ten Year Bond Yields Rising to 3.75% Probable
This from John Murphy at StockCharts.com:
- “A BOND YIELD RISE TO 4% WOULD STILL BE WITHIN MAJOR DOWNTREND AND RETURN YIELDS TO MORE NORMAL 2010 LEVEL…” The monthly bars in Chart 3 show the downward trend of the 10-Year T-Note yield since 2000 (when it peaked near 7%). A down trendline drawn over that 2000 peak and the one in 2007 (just above 5%) is currently sitting near 4%. That means that a rise in the 10-year yield to 3.75% would still be within a 14-year downtrend in yields. Yields would have to exceed 4% to reverse that downward trend. When looked at from that perspective, a rise to 3.75% appears relatively modest.
Federal Reserve Assets, S&P 500 Index and Gold
*courtesy of James Turk, author of The Money Bubble
With kind regards,
Steve
Stephen B. Blumenthal
Founder & CEO
CMG Capital Management Group, Inc.
Philadelphia – King of Prussia, PA
steve@cmgwealth.com
610-989-9090 Phone
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