Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19
Crude Oil Price Fails At Critical Fibonacci Level - 15th May 19
Strong Stock Market Rally Expected - 15th May 19
US China Trade Impasse Threatens US Lithium, Rare Earth Imports - 15th May 19
Gold Mind Reader's Guide to the Global Markets Galaxy: 'Surreal' - 15th May 19
Trade Wars and Other Black Swan Threats to Your Investments - 15th May 19
Our Long-Anticipated Gold Momentum Rally Begins - 15th May 19
Defense Spending Is Recession Proof - Defense Dividend Stocks - 15th May 19
US China Trade Issues Will Drive Market Trends – PART II - 14th May 19
The Exter Inverted Pyramid of Global Liquidity Credit risk, Liquidity and Gold - 14th May 19
Can You Afford To Ignore These Two Flawless Gold Slide Indicators? - 14th May 19
As cryptocurrency wallets become more popular, will cryptocurrencies replace traditional payments? - 14th May 19
How US Debt Will Reach $40 Trillion by 2025 - 14th May 19
Dangers Beyond a Trade War with China - 14th May 19
eBook - Greatest Tool for Trading? - 14th May 19
Classic Pitfalls for Inexperienced Traders - 14th May 19
Stock Market S&P 500 Negative Expectations Again - 13th May 19
Why Rising Living Standard in China Offers Global Hope - 13th May 19
Stock Market Anticipated Correction Starts On Cue! - 13th May 19
How Chinese Trade Issues Will Drive Stock Market Trends - 13th May 19
Amazon SCAM Deliveries for Fake Verified Purchaser Reviews "Brushing" - 13th May 19
Stock Market US China Trade War Panic - Video - 13th May 19
US Stock Market Leading Macro Economic Indicators Update - 12th May 19
SAMSUNG - BC94.L - Investing in AI Machine Intelligence Stocks - 11th May 19
US Increases Trade Tariffs Against China – Stock Markets, Gold, and Silver - 11th May 19
Who Has More To Lose In A No Deal Brexit? - 11th May 19
Gold at $1,344 Will Start Real Fireworks on the Upside - 11th May 19
Make America’s Economy Great Again - 10th May 19
Big US Stocks’ 2019 Fundamentals - 10th May 19
Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - 10th May 19
Stock Market Shake-Out Continues – Where Is The Bottom? - 10th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Key Markets And Indicators Divergence: Stocks, Copper, Treasuries, Bonds, Investor Sentiment and Commodities

Stock-Markets / Financial Markets 2011 May 22, 2011 - 03:17 PM GMT

By: Tony_Pallotta

Stock-Markets

Best Financial Markets Analysis ArticleI posted a few charts this week showing some extreme levels and or divergences and wanted to combine them into one follow up post. The equity markets are at a very important juncture right now and confusion is rampant in every trader's mind.

The markets have fooled almost everyone over the past two years and with QE2 ending in six weeks the headlights draw near as the deer stand in the middle of the road unsure which way to run.


Copper: Copper has been a very good indicator of equity direction even during Fed QE when other correlations have broken down. We currently have a very large divergence with the SPX and the question becomes did copper put in a bottom based on last week's price action or was that a similar bounce as previously witnessed since the February 2011 high of 4.6495.

I believe the answer to the above question regarding the future of copper was answered on Friday with the COT report (found here). Commercial accounts have positioned themselves for a major correction in copper. In fact the last time they were positioned as such was April 2010 when QE1 was ending and copper was trading at $3. These are not traders but rather producers and users of copper. They know what's going on in the market as they are the market.

The chart below shows the correlation between the SPX and Copper Commercial Net Positions.

Corporate Bond Spreads: Amazing how the spread between high yield and investment grade corporate debt bottomed in 2011 at 80 basis points (bp) while in 2007 it bottomed at 79 bp. They could trade lower as high yield catches even more of a bid but they are at multi year lows after an impressive move since 2009.

Treasury's: Using history as a guide bonds caught a bid in April of 2010 a full two months before QE1 ended and have begun to show a similar pattern in 2011.

AAII Investor Sentiment: The divergence is at an extreme and someone is clearly wrong. History would say it is sentiment as the lower the number of bulls the higher the market will move. The divergence is absolutely massive though and remains the one big thorn in the side of the bears.

Commodities (data as of May 18, 2011): Commodities have peaked. Why would they peak now other than to fade QE2 or as economic data weakens? Commodities peaked in the summer of 2008 on average two to three months before the markets began their correction. The other question is why did Glencore, the largest commodity trader go public now and why has the IPO price already be taken out to the downside as investors bring down their valuations?

Copper – Peaked on February 15 – down 11.8%

WTI Crude – Peaked on May 5 – down 12.9%

Corn – Peaked on April 11 – down 4.3%

Wheat – peaked on February 9 – down 8.2%

Soybeans – peaked on February 9 – down 37.2%

Cotton – peaked on March 7 – down 28.2%

Sugar – peaked on February 2 – down 36.2%

Cocoa – peaked on March 4 – down 20.6%

QE History: With the second round of QE coming to an end we now have three of four events to use as a historical guide. Two times are the beginning of QE and one is the end of QE. All three times markets faded the news. History would then say the end of QE2 will also be faded. It is quite possible 1,370 on the SPX was in fact the beginning of that fade.

By Tony Pallotta

http://macrostory.com/

Bio: A Boston native, I now live in Denver, Colorado with my wife and two little girls. I trade for a living and primarily focus on options. I love selling theta and vega and taking the other side of a trade. I have a solid technical analysis background but much prefer the macro trade. Being able to combine both skills and an understanding of my "emotional capital" has helped me in my career.

© 2011 Copyright  Tony Pallotta - Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules