Wednesday August 8, 2012
This analyst notes the historic divergence in stock and bond prices. But he is not spotting the gaps in the hourly charts for bond prices.
Higher Lows As Money flows from Bonds to Stocks
Yesterday we showed the very long term ratio chart of money moving from Stocks to Bonds. While attaining the Fall 2007 ratio may be a bit much, here is a shorter term look. The pattern of higher lows is evident from the October low of 2011.
A Closer Look
Now take some time to really study this chart. What do you see happening? The analyst quoted in the first paragraph says the move to stocks is not happening. I posted this chart in direct refutation of that idea.
- the ratio bottoms in June, at a higher low than last October, see first chart
- the ratio challenges the 50 day MA (amazing how that works no matter the chart eh?), in fact it does so early in July and fails, and again July 20. This led the bearish analysts to conclude 2008 was about to happen all over again.
- Then last week sentiment got going as it does in third waves. The ratio broker through, tested the 50 day MA one last time and hit the 200 day MA yesterday. Not suprisingly markets are pulling back this morning.
But aha you say, theories like this are only valid across multiple asset classes. And after all there are numerous negative headlines on Draghi this morning in the never ending European Soap Opera. So let's sub stitute another asset in the same time frame with the same MAs.
Crude Oil versus TLT
The same general pattern is evident here, and there is no more emotional commodity than oil. WTIC has crossed its 50 day MA after a couple of tries and moved to a new high. while it is lagging the SPX above, the progress is clear. Again internal indicators and one versus the other in markets are much more valuable than simply looking at a single chart for one assets.
Our developing theory is that world wide money is flowing from one end of the Financial Hour Glass, say risk averse, to the other which embraces risk. On June 1, the financial sand had all moved to Risk Averse with the Dollar and Bonds hitting new highs. That is the Low in the stock ratio in the previous chart June 1. It occurs in the oil bond ratio a month later shown in this chart. So the move is on. Since it happens at different times for differetn assets, the market manages to fool those fixated on just bonds or just stocks or whether the EU or OPEC will meet in Vienna.
XME Ratio and GDXJ Ratio
To close out today's demonstration, here is XME an ETF of metal miners and such in the main panel and GDXJ the junior gold miners in the lower. Both as in the last two charts are plotted against TLT.
The point is
SPX broke out first, teh crude oil, and now XME and GDXJ are just joining the party! You can surf financial sites and find lots of 'analysts' trying to find the day, week, hour that THE market tops. Well in Year 2012 there are lots of markets, and they do not top and bottom at the same time. Fund managers who are compensated by fund performance are constantly sifting through data to find the latest move from a previously ignored asset class. This is why notions that the markets cannot say advance because the Eruopean economy is weak are dead wrong. If the funds move the money to crude oil, crude is going up. Note crude is up from$78 to $93 in the last few weeks. Yet fundamnental news stories said this could not happen, no way, too much oil from the Eagle Ford Shale to the Saudis, less driving in America, and soon Europeans would be walking to the unemployment lines. But oil rallied anyway.