Thursday, September 11, 2014

Quantitative Asset Allocation Portfolio Management


My postings have been and will remain very infrequent due to my work on quantitative system development.

I am using robust Trading Blox software to develop an asset allocation program that offers a much better risk adjusted return than buy and hold across equities, fixed income, spot currencies, and commodity ETF's. The latter two provide diversification in certain forms of non-correlation. Some can act as surrogates for inflation exposure. Others have very positive trend characteristics that have little to do with US markets. The program has initial capacity to a half billion AUM.

The core system is tactically binary between long and cash. The enhanced system provides short exposure in very selected instruments for taxable accounts. For retirement/pension accounts, enhanced uses non-leveraged (non-volatility based) and very select inverse ETF's for exposure to intermediate term down trending markets.

The system uses simple and robust technical indicators to tactically time entry/exit of individual portfolio vehicles. The system uses fundamental factors for overall allocation between asset classes. When major fundamentals shift, allocation between asset classes shift with it. Additionally, clients can custom allocate depending on their needs, desires, and economic concerns. Any asset allocation portion or individual component is available a la carte.

The equity portion of the allocation is diversified across markets, geography, and capitalization.
It includes a portion devoted to my application of William O'Neil's US growth equity CANSLIM system. Additionally, it includes the Dow winning tactical switching study "An Intermarket Approach to Beta Rotation: The Strategy, Signal, and Power of Utilities."

However, I have improved on that great base system. That program is always long and takes the full brunt of 2008 and 2000-2003 style bear markets. For example, in 2008 the drawdown in the Vanguard Total Market Index neared 60%. The Utilities index was cut in half at its nadir. Both went down together. Ouch.

If you are going to run with that always invested system, you must be able to handle this level of draw-down when it comes. Which means: you must accept this upfront and always accept it while you participate in this system. Most intentionally forget about the risk and/or never accept that level of risk. Failing to accept this level of volatility, the investor will jump off the system into the maw of the draw-down and be too scared to rebuy. That's the psychology. I don't make these rules. However, I see them clearly and help others to follow them.

Personally, I want to avoid this level of drawdown in favor of a smoother ride. So to the MTA's Dow Award winning study, I have added a robust technical overlay to this switching system that is positive skew friendly and negative skew hostile. It adds much value and avoids major drawdowns with always long investing systems. These comprise the bulk of the "store-bought" methodologies available from Registered Investment Advisors. This is where I add large systematic value.

Stay tuned. More details coming.

Monday, September 8, 2014

Overboughtness...

The chart below shows the percent of NASDAQ NDX (leading index) with RSI greater than or equal to 70 as a measure of overboughtness I like to use. The market is entering a near term climax/froth zone if it moves higher from here.


Friday, August 29, 2014

Interview with Dr Philippa Malmgren regarding Precursor Inflation and the 70's

To paraphrase Wayne Gretzky: Skate to where the puck is heading....

Interview here


Dr. Philippa Malmgren is the President and Founder of Principalis Asset Management, based in London. Principalis engages in original research regarding risks to the market that are not easily quantified, namely politics, policy and geopolitics. Based on these insights, Principalis recommends specific investment strategies, trades and deals. Dr. Malmgren’s clients include many investment banks, fund managers and hedge funds as well as Sovereign Wealth Funds, pension funds, corporations and family offices.
She is a frequent guest on the BBC’s Today Program, Newsnight, a guest presenter on CNBC’s Squawk Box (UK and US) and is a speaker at many conferences across a wide range of industries. Dr. Malmgren has been a visiting lecturer at Tsinghua University in Beijing and an occasional lecturer for INSEAD and the Duke Fuqua Global Executive MBA Program.
She served as financial market advisor in the White House and on the National Economic Council from 2001-2002. Prior to that she founded Malmgren and Company, in London, England in 2000 and was previously the Deputy Head of Global Strategy at UBS and the Chief Currency Strategist for Bankers Trust. She headed the Global Investment Management business for Bankers Trust in Asia.
In 2000 The World Economic Forum named Dr. Malmgren a Global Leader for Tomorrow. She is a member of the Council on Foreign Relations, Chatham House, the Economic Club of New York and the Institute for International Strategic Security. She serves on the advisory board of Indiana University School of Public and Environmental Affairs. She is a Governor of the Ditchley Foundation in the UK.
She has a B.A. from Mount Vernon College and a M.Sc. and Ph.D. from the London School of Economics. She completed the Harvard Program on National Security and has a certificate from the 101st Airborne Division’s Air Assault School.

https://en.wikipedia.org/wiki/Pippa_Malmgren


Thursday, August 28, 2014

Long End Treasury Surge and the Collapsing Ruble

Another quick note this morning as I spy with my eye a huge breakout above the spring stress highs in the dollar/ruble exchange rate (up is ruble weakness). The breakout is huge with the ruble tanking more than a percent overnight. The Russian Micex index has fallen 1.7%The Ukranian/Russian skiff has intensified and the US/EU sanctions continue to bite. The currency move shows real concern with the safe-haven dollar bid. Treasuries remain firmly bid at the longest end with the ZROZ strips ETF making a new high for its uptrend yesterday while the twenty plus duration TLT outperforms the still rising seven to ten year IEF ETF. China got clipped overnight between 1.5% and 2%.

Equities are overbought, have stalled over the last few sessions, and have rallied on very light volume in this move higher. Ahead of geopolitical risk over a long weekend, I expect some level of pressure into the remainder of the week. The trend remains up for the general market (sans the Russell 2000). The bid at the Treasury long end is eye-opening from a risk-off standpoint. Irresistible Treasury force meet immovable equity object. Who will blink first and when?



Wednesday, August 27, 2014

Declining Average Daily Volume in SPY

Note: I remain on vacation and low publishing until next week.

The McClellan Oscillator of advances and declines remains just shy of my first overbought level while the SP 500 has tagged the 2000 big round number. My expectation is for some form of pause as traders begin to square up into the end of the week and take some level of profits ahead of the long weekend.

Here is a nice graphic on the amount of specs in Crude along with their recent rate of change lower.



Here is an interesting study for your technical enjoyment:



If you click on the above chart, you'll see the rolling 50-day average of volume in SPY and the rolling 50-day average of daily trading range in SPY.  What is clear is that:  a) volume is closely correlated with index movement (the daily correlation over this period is .84); and b) volume and volatility have been crushed in the past several years.

The excellent Quantifiable Edges site points out that, since 2012, low volume on market strength has not been bearish.  Traders looking for volume confirmation of market strength have missed an important dynamic of this bull market.

Eldad Nahmany points out a very interesting study in which subjects found that having nothing to do was an aversive state--so aversive that they preferred painful activity to no activity.  The implications for trading in quiet environments are significant:  With little movement to stocks, traders needing movement might gravitate toward bad trades over no trades.  Such overtrading may not simply be a matter of poor discipline or lack of trading plans.  Rather, it would be the result of a failure to tolerate inactivity.  

As I've pointed out in other contexts, we are never alone and we are never without activity.  There are simply times when what we have is our own company and the activity of our own thoughts.  How well we tolerate our own company may be an important--and poorly appreciated--predictor of trading success...especially in quiet markets.

Friday, August 22, 2014

McClellan Oscillator Remains at 2014 Highs

Note: Postings will remain light through the Labor Day holiday.


Briefly, market advance/decline internals remain at their highest levels of 2014 ahead of Fed Chairwoman Yellen's speech today at Jackson Hole (buy rumor/sell news risk given the V-bottom rally in place).  I notice that despite the surging rally, Treasuries have held their aggressive ground gained at the long end. It's a really interesting development. If the equity rally shows a strong economy, why the continued bid in defensive long end Treasuries?

Credit default swaps have plunged back to their lows after hitting resistance at their 2014 highs while the VIX has collapsed. The CSFB Fear barometer is back into risk off ground as is the CBOE Skew index. The AAII Bull ratio once again shows excessive bullishness after this ramp higher to new highs by the major indices (sans the RU2K which is hitting a near term ceiling at its 50 day SMA.) I notice the banks, while still underperforming, have shown relative strength in the past few sessions, especially yesterday's huge thrusting surges in BAC, C, and JPM.

The market is at a binary event in my opinion. Given the rally, if profit taking attempts to move lower continue to find a strong bid, I think odds of a move much higher are favorable given current general momentum and the banking momentum seen yesterday. Otherwise, these current highs are at least a logical overbought pause and churn point.

New names on the leaders list include TRUE, GRUB, LEJU, and TRN.

Tuesday, August 19, 2014

NYSE McClellan at Second Highest Point of 2014

Been on vacation so lightened load these next two weeks. There has been a very weak follow-through day in the NASDAQ only on Aug 13. Short term the NYSE McClellan oscillator is at its second highest point of the year since February.  There is room for it to move even more extreme, but for perspective, it has entered nose bleeding territory.


Wednesday, August 13, 2014

Brief Update: Crosscurrents and a Bearing Up of Sentiment

Brief Update:
  • The market inflection from down to up between 8/7 and 8/8 was sharp and has held its ground. The SP 500 held and bounced from the multi-year trend line I mentioned last week. That is a major risk-on above, risk-off below line in the sand. Resistance lies at 1949/50 or the 50 day SMA along with the current down trend line from the highs.
  •  US equities have worked off their deeply oversold McClellan oscillator condition with the NYSE version at the zero midpoint. This is a natural, logical place for the market to show signs of stalling.
  • The current rally shows paltry new highs. More rally will throw a large negative divergence from the prior rally's net new high level unless new highs really pick-up. 
  • The Utility/VTI relative strength indicator switched to risk on last Friday. 
  • Sentiment has really come off its complacent highs. Indicators include CBOE Skew, put/call, CSFB Fear Barometer, and the AAII bull ratio. The Rydex ratio, while still excessively high, has accelerated lower. All this shows clear fear and a wall of worry entering the market. This is a welcome sign from the complacency that developed from May to late July.
  • Given sentiment, the long term SP 500 trend line I mention above "should" contain further declines. Strong support lies at the 1900-10 level. 
  • Europe, compared to the US, has been profoundly weak. I note that the dollar/ruble cross is near its Spring high and has ignored the lessening of tensions newsflow on the Russian/Ukranian row. Europe is attempting to stabilize technically from its severely oversold condition.
  • Junk fixed income has rallied sharply off its spike lows and back into obvious retracement levels: 50% and the 200 day SMA for JNK. The leveraged loan BKLN ETF shows very little rebound. JNK remains below long term trend line resistance from October 2011. It broke this trend line two weeks ago. This is large looming resistance.
  • The BKX bank index remains below its 200 day moving average. It needs to eclipse soon or risk grows for the current corrective down trend reemerging. Financials are a leading sector.  
  • The benchmark 10yr future remains well bid and holding its long term resistance trend line break (April/May 2013, May 2014) . This is a bearish overtone intermediate term. Lower yields at the long end suggest defensive asset allocation positioning.

So their are many crosscurrents at this juncture. The equity market has yet to produce a follow through day with one of the major averages up at least 1.2% on heavier volume. These precede all intermediate term rallies but not all follow-through days work. There is a signal to noise ratio. The lack of a follow-through day means heightened risk of further chop or a test to some level of the recent lows.

What is most striking to me is the lack of much down side follow through for the level of fear that has crept into the market. Ultimately, this is bullish as the market got very little bang for the downside buck. 

I suggest treading lightly with position size. Stocks acting well on my radar include: TRUE, GILD, BIDU, FB (above 74.20), TSLA, PBYI, SWKS, and PANW.

Friday, August 8, 2014

A Sketchy Market Remains Sketchy

Highlights:

  • I start with credit. Note the very large breakout above resistance in the benchmark 10 year Treasury future on the weekly log chart. This is equity bearish. 
  • Zeros continue to show strong upward momentum at the long end as well.
  • With the curve flattening, the BKX bank index continues to come under pressure with the leading index falling under its 200 day SMA. The index is acting convergently with lower equity prices.
 

  • The KRE regional bank ETF has a head and shoulders in play with the closing line chart right on the neckline. 


  •  This chart shows the SP 500/30yr T-bond spread beginning to revert from extreme SP 500 out-performance to a secular high. Note the broken trend line and double top.

  • This chart shows the positive correlation pickup between the BKX (leading) and the SP 500 along with important trend lines (one broken).

  • Both the US and EU Bloomberg Financial Conditions Indices are breaking lower and showing downside follow through towards more stressful conditions. This is convergent with the equity sell-off.




  •  The CDX (credit default swap) Index has broken out from important trend line resistance. I note the absolute level is low, but it rallies off a solid six month triple bottom.



Internationally

  • The ruble continues to sink against the dollar as the crisis in Ukraine continues unabated. The rate nears its prior stress highs. Note the chart is inverted (up is dollar strength/ruble weakness).


Now on to equities
  • New lows have picked up dramatically and the 10 day SMA of net new highs is breaking key trend line support levels in the second chart. This is consistent with a period of high risk in equities.


  • Let's look at some measures of how oversold the market is. The two charts below show the NASDAQ NDX and SP 500 constituents with an RSI below 30 measured in standard deviations over the past three years. There is plenty of room to move higher. 

 
  •  The NASDAQ McClellan Oscillator looks vulnerable and has plenty of room to fall to prior large sell off lows of nearly the past five years. The same is true for the NYSE in the second chart.



  • Here are two line charts of the NDX and Russell 2K showing key support areas
  •  The SP 500 is right on very important long term trend line support from 2011 on the weekly log chart. Note the leading breakdown in RSI.

Summary

Long end Treasuries have been flashing warning signs of relative price strength over the past month. This remains the case as measures of credit stress like the Bloomberg indices above have broken down in earnest. The upside breakout in the 10 year Treasury's weekly chart is glaring. It took real bid work to do that. 

The SP 500 has touched and bounced off long term support. Yet while oversold, there is room for the market to move lower and reach prior levels of oversold extreme. While its obvious the market is oversold and a bid can emerge, I remain very defensive on the long side.

Wednesday, August 6, 2014

Credit Machinations and a Three Year SPX Support Trendline

Highlights:
  • Tuesday's new low in the SP 500 on increasing volume was an ominous fast failure and abortive from Monday's low volume rally. The SP 500 had tested last Thursday/Friday's lows a total of four times. This typically is enough to engender some additional form of rally. The market broke through the trend line connecting those lows and made a new low for its move down. This raises odds of more waterfall lower. Fast moves down accelerate from oversold conditions and rally failure. This is one way washouts occur.

  • The NYSE McClellan oscillator remains at my deep oversold level. The summation index has gone negative. The rally failure, coupled with an extremely oversold condition is what raises the odds of a waterfall, "puke" move down. 
  • Here is the SP 500 line in the waterfall sand - a three year weekly log chart support trend line:
 
 
  • Financials and banks are a leading index and the TBTF banks were notably weak yesterday. JPM is back under its 200 day SMA after a big earnings rally that has been completely erased. It is under pressure again this morning. The action is bearish intermediate term with the TBTF bank targeting support between $53/54.  The BKX bank index is on the first of two key support trend lines but has closed below its 200 day SMA on a closing line chart. Positive correlation heads towards one. 

  •  Across the pond, European bourses are getting creamed with Portugal and its banking crisis leading those bourses. The PSI-20 is making a sharp move down of nearly 4% for a new move low.
  • The dollar/Russian ruble cross continues to rally and nears its Spring high as tensions with Ukraine and the US/European economic clamps escalate. Irresistible US/EU force meet an immovable Putin object. The exchange rate is the barometer for capital flight and economic stress. The Russian Micex index has made a new low for its move down since late June and has broken a four month uptrend this morning since its March nadir. 
  • Treasuries remain firmly bid. Note the following yield/correlation chart with the SP 500. It shows correlation coiling at a low (negatively correlated) and now turning back up as yields break down with the SP 500 under pressure. The trade this suggests is Treasuries up/Yields down/Equities down. 
  •  The 2's/10's yield difference (subtraction) correlation is at a multi-decade non-correlation (20 day) extreme with both now starting to turn down (and revert). This flattening is equity bearish.


  •  Also note the extreme high in the SP 500/30yr T-Bond price spread. A corrective move lower has the Treasury long end outperforming and reverting. Note the broken trend line.
 

  •  On a closing line chart the LQD/TLH spread is on 2014 support for the fourth time.
  • The BKLN Leveraged Loan Index is at its lows from last summer and has broken a key support trend line from November 2012:
  •  The Bloomberg US Financial Conditions Index is making a new low for its move down from extreme complacency of a few weeks ago. The European version is close to a new low and shows roughly twice as much stress as the US, though both are in positive territory. 
  • The CDX index (credit default swaps) has bottomed, ramped and broken its downtrend from 2014 highs. It remains below those highs but confirms the stress pickup in credit shown in the leveraged loan and high yield junk space.
  • From the above credit indicators and banks, I suggest the move towards risk off appears to be stacking across instruments and spreads.
  • Five day net new highs went negative. This has bearish overtones.
 

  • Interestingly the IBD 50 Growth Index shows a very large relative strength breakout in out-performance to the SP 500. This is a nice change that - hopefully - sticks after this down trend in the major equity averages runs its course. It's been under-performing since January after a solid 2013.
  • I remain devoid of long exposure. 

Monday, August 4, 2014

Bounce Expectation

Highlights:
  • The Dow Jones Utilities/Total Market Spread indicators triggered a switch into Utilities at Friday's close with the defensive index outperforming on a rolling four week basis.
  • The SP 500 has found support on a major long term trend line in force since 2011. This line, for now, "should" contain the decline short term. A failure to contain suggests high odds of another waterfall move lower. 
  •  I suggest "should" contain for the following oversold reasons. The NYSE McClellan Oscillator is into extremely oversold territory. The CBOE put/call ratio spiked to just over 1 last week. The VIX has ramped into its prior high zone for the past year. Their was downside volume climax selling that occurred Thursday in the total market: 
  •  Note that I suggest a short term climax selling low. The level of technical damage that occurred over the past week in equities and two weeks in credit suggest otherwise. My logical expectation is for a bounce in risk on equities and low "kwality" credit like junk and leveraged loans. They are extremely beaten-up. Intermediate term I remain bearish given the selling momentum and broken long and intermediate term trend lines in credit. 
  • Intermediate term, the action in new high, new lows, and net new highs is bearish:

One hallmark of down trending markets is the sharp but abortive rally that abruptly stalls. My expectation is for an oversold, short term scared market (McClellan oversold, CBOE put-call ratio/VIX spikes last week) to bounce with the SP 500 targeting the underside of its 50 day SMA and the 1950-60 level. Additionally, I view the delta between my expectation and what the market does as a tradable moment as well.

Friday, August 1, 2014

Initial Signs of Short Term Climax Selling Underway

Highlights:

  • The NYSE McClellan oscillator has entered my extremely oversold zone - an area that has contained and created V bottoms in the indicator since 2008. It has room to move lower.

  • My climactic volume indicator hit into a three year heavy selling range. 

  •  Here is an update on the chart showing SP 500 stocks with RSI less than 30 that shows prior highs:




  • NYSE tick showed a large spike yesterday that brought it to levels seen late January.
  • NYSE TRIN showed a healthy spike above 2 yesterday.
  •  The VIX has spiked into prior highs of 17 to 22 range.
  • New lows have picked up dramatically and the 10 day difference between highs and lows heads straight to key support.
  • The Bloomberg US financial conditions index has made a lower low from its spike down last week on its initial wave lower in junk/leverage loan credit. 
  • The CDX credit default index has ramped off its complacency lows of 2014. It is below its 2014 highs and just barely under the trend line connecting those prior two highs. Note the absolute level at 344 is well below year ago highs of 400 to 480ish. However, the CDX index acts convergent with pressure in low quality credit.
  • The SP 500 cleanly broke its 50 day SMA yesterday.
  • Key support for the NASDAQ lies at 4350. That level contained two prior spikes down in July. 
  • The NDX line chart with trend line I showed in yesterday's post broke yesterday.
  • Both the CBOE Skew and CS Fear Barometer have dropped dramatically from their highs. This shows pressure release but is not a all clear sign. Skew needs to drop quite a bit further and can show a few tests of this lower level before coinciding with the cessation of market selling. 
 ____________
  • Internationally, European indices are in much worse shape that their US counterparts given that many of the majors across the pond are below their 200 day SMAs. 
  • Note the breakdown in the Bloomberg European financial conditions index with its sharp drop yesterday. It remains well above zero but the trend is down towards stress.
  • Note the new down trend low in the Portuguese  index this morning. 
  • Note the new move high in the dollar ruble cross showing continued risk aversion and capital flight against the Russian currency.
  • The Israel/Hamas ceasefire is off. 
  • Note the Ebola problems in Africa.  A US national flew into Lagos Nigeria, was slated to fly back to Minnesota in mid-August, collapsed in the terminal fully engaged and infectious, and died about a week ago. Now Nigeria is attempting to find 30K people that came into potential contact with him at their international airport. Those people have moved on to other destinations both inside and outside the country. 
  • Here is a link to the google trends on ebola. Note the hockey stick and absolute level compared to prior contained outbreaks. This outbreak is the largest and is currently out of control. The incubation period is two to twenty one days. People become contagious when symptomatic and spread bodily fluids. There is another two week window on incubation from when the US national collapsed at the airport. I note that the main systemic transmission vector for Ebola - which kills between 60% to 90% of victims - has been compromised (international airport hubs). This outbreak is materially different than all others. It's been ramping since this past February and gaining in strength. Avoid doomsday prepping thinking/histrionics, but due note what's happening.
___________

As I have been mentioning all month, the major indices have been piling up higher volume distribution sessions prior to yesterday's market sell-off. The environment has been and remains poor for growth. All recent breakouts by leading issues have come under pressure. I liquidated a short into weakness at the close yesterday and remain defensively/tactically allocated to cash.

Thursday, July 31, 2014

Under Pressure....


 Highlights, Bull and Bear:
  • The NYSE McClellan is below my first oversold level and heading down. It can travel much further to get to the extreme levels of oversold spikes seen over the past five years. The total market McClellan summation index has broken an important support trend line of market internal strength dating back to the second quarter of 2012. Suffice to say the buy the dip bid can appear at any time. Also note that large and fast declines occur from very oversold conditions that consolidate at the lows and fail to rebound. That is one way the market generates large spikes to extremely oversold conditions I mention above.
  •  The large banks found strong support yesterday on the FOMC news and showed a day of sharp relative strength. Holding the strength today would be a very strong sign.
  • The broker dealer ETF continues in an uptrend and nears prior highs.
  • Dollar yen surged off support in a huge move higher that portends further rally on the momentum alone over the intermediate term. 
 Bearish:
  • Junk is on the ropes again this morning with a new low for the move in JNK and BKLN. High yield credit was creamed yesterday with the JNK plunging below its 200 day SMA while the BKLN leveraged loan index nears its Nov 2013 and April 2014 lows. While it appears near term climactic, due note the technical damage in the space. This includes spread breakdowns between risk credit and corporates and Treasuries.
  •  The SP 500 percent of stocks with RSI less than 30 has ramped showing internal selling pressure masked by the headline average. Note the present position at one standard deviation and prior levels:
  •  The mid-caps are at an important inflection shown on the midcaps above their 50 day EMA:
 

  • Regional banks remain weak:
  • Dow Theory: Both the industrials and transports have rolled over and attempt first support at their respective 50 day SMA's. Note the trend line breaks:
  •  The highly positively correlated XOI oil index has rolled over and rides a key short term support trend line. Crude itself is below its 50 day sma but above its 200 day sma.

  • The Utilities/Broad market spread shows utilities barely outperforming. A weekly close at current levels is a risk off indicator based on this study.
  • The VIX remains above its 50 day exponential average.
  • The extremely bullishly extended Rydex ratio has broken an important up trend and has turned down. The extreme high and turn lower shows a large level of selling fuel.
  • Wildcards: The Portuguese PSI 20 index has made a sharp new low on their ongoing banking crisis that started at the beginning of the month. 

 
  •  The SP 500 logged its sixth higher volume down day distribution session Tuesday. It has broken the first of two important trend lines but held its 50 day SMA overnight. Technical internals from my prior post remain bearish. The logical expectation is for the very oversold market to find support here at the 50 day and mount some sort of rally. A closing failure below it suggests higher odds of a more aggressive climactic discounting in the major averages. "Gun to my head" I think the SP 500 declines until the Russell 2K finds major support at is April/May lows.
  • The leading NASDAQ NDX is at important trend line support on its closing line chart.

Growth equities are getting hit across the board this morning. I have been avoiding them all month due to the distribution sessions piling up like a rush our traffic jam in the major averages. I am very interested in what names on my left margin list show relative strength during this sell-off.  The major risk off shift underway in leveraged loans and high yield credit along with the extremely complacent sentiment picture heading into this decline in a five year old bull market being lead higher by a narrowing list of large cap tech names.........whew........keeps me defensive.

Monday, July 28, 2014

Bearish Equity Divergences

Highlights
  • Note the stress pickup in the dollar ruble exchange rate today as the ruble falls in value (capital flight risk) towards its spring (Ukraine invasion) nadir. This thrust higher is a new high for the move up since the tragic, criminal destruction of the Malaysian airliner over the Ukraine. Additionally, the US has turned up the banking screws on three of Russia's largest companies in an attempt to circle the wagons around Putin after his Crimea annexation. 

  • Treasuries stutter-stepped with selling Thursday but regained their out performance footing Friday as the safe-haven bid showed sharp demand at the riskiest long end with ZROZ surging to a new high. The 30yr bond future consolidates tightly at its move highs while the 10yr future consolidates lower but within its uptrend. I note the sharp uptrend in TLT outperformance to the commodity space in the following spread chart. This is equity bearish and shows trend towards risk off.
  •    The SP 500 under performs Treasuries:
 
  • The high yield "risk-on" space stalled Friday after rebounding from its sharp selloff lows last week. It under-performs Treasuries and has made a new near term move lower on its weekly spread chart. This break and stalling action from high yield credit is a large divergence from equities and a warning sign. BKLN or the proxy for the leveraged loan index stalled as well and consolidates under both its 50 and 200 day moving averages (not shown). 



  • The VIX is above its 50 day exponential average which is an important marker of periods of increased volatility. 

  •  On a weekly chart the homebuilders have a large top in place and hug a key support trend line. Last week saw price fail at the 200 day SMA resistance and create a shooting star candle showing the overhead selling supply.
 

  •  A key near term trend line-in-the-sand for the SP 500 I show below:


  •  I note there are quite a few technical divergences stacking for the SP 500 on the daily chart. The NASDAQ shows similar problems:
  • Growth stocks showing signs of strength on earnings include: BIDU, SKX, FB, CMG, SWKS (note the selling in the SOX last week now below its 50 day SMA), and UA.
  • The most bullish indicator on my screen is the general oversold level of NYSE McClellan oscillator.

Credit ultimately drives the equity bus. Risk on credit in the form of junk and the leverage loan index have broken key long term technical support lines and moving averages. Treasuries show abnormal strength in the face of a rising equity market led by a thinning net new high herd shown here of large cap tech. Again, note the breakdown in the formerly leading SOX index. I remain defensive in the growth equity space given the aforementioned intermarket relationships and how fast and hard the tide can turn in the space shown here.