Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15
Draghi's "No-growth" QE Money for Stocks, Zilch for the Economy - 25th Jan 15
Unjust and Undeclared Wars - 25th Jan 15
The European Central Bank Commits Monetary Suicide - 25th Jan 15
Stock Market ECB EQE week - 25th Jan 15
Gold And Silver Timing Is Most Important Element - 25th Jan 15
The Best Way to Invest in the Next Alibaba Internet Stock IPO - 25th Jan 15
The Outpatient Surgery Business Rains Cash into Healthcare Stocks - 25th Jan 15
Stock Traders Flock to Gold GLD ETF - 24th Jan 15
10 Reasons Why You Need an Offshore Bank Account - 24th Jan 15
Goldman Sachs Blankfein - Regulation is Like Background Noise - 24th Jan 15
Gold in Euros Surges As ECB To Print Trillion Euros and Greek Election This Sunday - 24th Jan 15
Gold Bear Market Rally or New Bull ? - 24th Jan 15
Euro-zone 'QE already Working' Says IMF Lagarde - 23rd Jan 15
ECB and EU LTRO and QE for Dummies: Or, Make These Trades - 23rd Jan 15
Debt and Deflation: Three Financial Forecasts - There's More Than Falling Prices - 23rd Jan 15
Market Should Not Doubt' Mario Draghi ECB QE - 23rd Jan 15
Francs, Bonds, Barrels, and Bail-Ins - 23rd Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

S&P 500 Relative to Europe is Raising Red Flags for Bulls

Stock-Markets / Stock Markets 2011 Sep 14, 2011 - 01:26 AM GMT

By: Chris_Ciovacco

Stock-Markets

Best Financial Markets Analysis ArticleThe S&P 500 has been regarded as a relative “safe haven” given:

  1. The high probability of a default by Greece.
  2. Concerns debt markets will focus on Italy next.
  3. Weakening economic data in Europe.

On the morning of September 13, German stocks rallied strongly, but the S&P 500 seemed a bit more hesitant. If under-performance of the S&P 500 relative to German stocks continues for a time, it may be an ominous sign for U.S. stocks and safe haven sectors, such as consumer staples (XLP). Recently, the S&P 500’s performance relative to German stocks reached the top of the pink trend channel shown below (see point C).

Investment Strategy - US Germany - Deflation - Bear Market

Compare points A and B in the charts above and below.

Investment Strategy - US Germany - Deflation - Bear Market

The charts of the U.S. and Germany align well with our concerns relative to a possible deflationary signal given by the U.S. Dollar Index last week. As mentioned in our recent look at the U.S. dollar, we continue to watch the relative performance of inflation-friendly assets:

  1. Silver (SLV)
  2. Agriculture (DBA)
  3. Copper (JJC)
  4. Australian Dollar (FXA)

and deflation-friendly assets:

  1. Short S&P 500 (SH)
  2. U.S. dollar (UUP)
  3. Long-Term Treasuries (TLT)
  4. Intermediate-Term Treasuries (IEF)

If the inflation assets hold up well vs. the deflation assets, it gives hope to the bulls. If inflation assets, such as the Australian dollar, become increasingly weak vs. deflation assets, such as the U.S. dollar, it is another bearish signal, in an increasingly long-list of negative developments, for the economic/market bulls.

The market’s current risk-reward profile and present debt market conditions do not bode well for the S&P 500 maintaining safe haven status. As shown in the charts of the 2008 bear market below, safe haven markets tend to be a temporary phenomenon in the context of a bear market.

Investment Strategy  - Deflation - Bear Market

Investors who have been told “you will be fine” in defensive sectors or “tried and true” stocks may want to brush up on their bear market history.

Investment Strategy  - Deflation - Bear Market

The current state of the S&P 500 is fragile at best. Last week, the CCM Bull Market Sustainability Index (BMSI) dropped into a range that typically means the bears have overtaken the bulls in terms of probable outcomes – said another way, the odds are against the S&P 500 overtaking the spring 2011 highs relative to the S&P making new lows in the months ahead.

Investment Strategy  - Deflation - Bear Market

The excerpt below from Bloomberg should throw some cold water on the face of the “now is the time to buy” crowd:

We’re getting close to a full-blown banking crisis in Europe,” El-Erian, Pimco’s chief executive officer and co-chief investment officer, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We are in a synchronized global slowdown. There’s very little confidence in economic policy making both in Europe and the U.S.”

In terms of our deflationary stance, we may add to our shorts (SH) and/or small position in the dollar (UUP) if we see reversals near the levels shown above. We would feel more comfortable relative to the probable next leg down in stocks if the S&P 500 closes below 1,140 (1,146 is also a good step). On the upside (above 1,172), the several pockets of potential resistance sit between 1,174 and 1,195, with 1,180 being a very reasonable level to revisit.

A Bloomberg article may have captured the ongoing concerns in Europe, despite a relatively-decent bond auction in Italy and talk of the Chinese stepping in to solve all the world’s problems:

“This auction (Italian bonds) will do little to improve the deteriorating sentiment,” Michael Leister, a fixed-income strategist at WestLB AG in London, wrote in a note to investors. “Neither will this morning’s reports on possible Chinese support, as the market has heard these stories before with regards to Greece, Portugal and Ireland, with no follow up. The only institution with both the ability and flexibility to act is the ECB.”

Ciovacco Capital Management

    Copyright (C) 2011 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

    Chris Ciovacco Archive

© 2005-2014 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

Free Report - Financial Markets 2014