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On the Fickle Correlation Between Stocks and Oil Prices

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The sharp decline in crude oil prices in Q4 of 2018 helped to take down the stock market in sympathy.  And then the rapid rebound by oil has coincided with a robust rebound in stock prices, with strong breadth numbers to help confirm the stock market’s strength in 2019.  But if you think you understand the relationship between stock prices and oil prices, then you have not looked at enough data yet. 

Oil and stocks have been in a strong positive correlation since around the beginning of... Read More

JOLTS Data Stumble, but A-D Line Says Don’t Worry

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There was a small dip in the number of job openings in February 2019, causing a bit of alarm among some labor economists.  But it recovered part way in March, the latest month for which data are available.  And the continued upward movement of the NYSE Advance-Decline Line says that we should not be concerned about that dip in job openings.

The Bureau of Labor Statistics (BLS) publishes these data each month in their Job Openings and Labor Turnover Survey (JOLTS).  They make these estimates... Read More

A New VIX Indicator (That’s Really Not All That New)

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A little bit of fear over the old saying about “Sell in May and go away” has led the VIX Index to pop up through its 50-day moving average (50MA), but stopping right at its upper 50-1 Bollinger Band.  The VIX’s pattern of higher lows is not confirming of the higher price highs, and for now that is a problem for the bullish case.  But it is a problem which can get resolved, as the March 2019 example illustrates. 

I show the chart above as an important prelude, even though I’m burying the... Read More

Lofty RASI Says Uptrend Is Not Done Yet

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We are now 4 months into the rebound off of the Dec. 24, 2018 low, so it is a natural question to wonder if the uptrend is going to continue, or whether instead the major averages are going to stop here at the level of the prior highs.  This week’s chart offers us some useful clues about which answer applies this time.

Here is the shortcut version: Gobs of breadth is a good thing.

Now here is the longer explanation: When the NYSE’s A-D Line is really strong for a long period, it produces... Read More

Lumber Gets Its Mojo Back

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Back on March 22, I wrote here about how the price of lumber had lost its ability to correctly foretell several economic data series which tend to follow in lumber’s footsteps.  The big blowoff move up to the May 2018 top at 639, where lumber stayed for about a nanosecond, has not been getting replicated in the other data related to housing.  My explanation of this is that it was not a pure supply/demand event, with messaging about what lies ahead for the other data series.  It was, instead,... Read More

2-Year Yield and Fed Funds Finally in Balance

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I have long advocated for the FOMC getting out of the business of setting short term interest rates, and instead they should outsource that job to the 2-year T-Note yield.  While that outsourcing might put several American PhD economists out of work, I’m okay with that, because it would give us the benefit of having more efficient monetary policy, with less severe bubbles and depressions. 

This week’s chart compares the Fed Funds target rate (black line) to the 2-year T-Note yield (green). ... Read More

VIX Futures Open Interest

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VIX futures contracts have only been a thing since March 2004, and they were not a big thing when they first started.  In more recent years, they have become an important tool for a lot of hedge funds and other portfolios, and they have also become important in terms of giving us information about what lies ahead. 

This week’s chart looks at the total open interest in all of the different VIX futures contracts which are open at any given time.  It does an interesting job of correlating well... Read More

Bond CEF A-D Line Showing Big Strength

weekly Chart In Focus

Liquidity is the big factor which drives the overall stock market.  But liquidity is not measurable; it has no units.  It is like the wind - - you cannot see the wind, you can only see what the wind does to trees, buildings, carports, etc.  So if you want to know what the wind is doing, you need a windsock.  And if you want to know what liquidity is doing, you similarly need an indicator of what liquidity is doing, good or bad. 

This week’s chart does a pretty good job at that task.  And it... Read More