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Fed is Behind, But Still Screwing Up

 
weekly Chart In Focus

Make me Emperor for a day, and I would compel the FOMC to outsource interest rate policy to the bond market.  Why should we pay 12 experts, most with expensive Ivy League PhD degrees, to do what the bond market can do far more efficiently (and cheaply)?

This week’s chart compares the 2-year T-Note yield to the stated Fed Funds target rate.  The FOMC has actually said that the target rate is 1.5% to 1.75%, so I’m splitting the difference by calling it 1.625%.  What this chart shows is that... Read More

Backmasking The DJIA’s Price Pattern

 
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The stock market is continuing to display a weird backwards rerun of its own behavior 9 years ago.  I wrote about this here back on Jan. 18, 2018, in a Chart In Focus article titled, “Ending How It Began (Parabolically)?”.  That was just a week before the stock market’s blowoff top.  So it is time for a review of how things have turned out since then. 

Just so you understand what this week’s chart is showing, what I have done is taken the black-line plot of the DJIA, and rotated it around... Read More

What Really Drives the Arms Index

 
weekly Chart In Focus

Earlier this month, the technical analysis community mourned the passing of Richard Arms, the creator of the eponymous Arms Index.  You can read an obituary by Jonathan Arter here.  I met him a few years ago and had corresponded with him, and I can tell you that he was not only a brilliant chartist, he was also a really nice guy.  He was happy to share his insights with others. 

The Arms Index is sometimes referred to as “TRIN”, short for TRading INdex.  TRIN was the old Reuters screen... Read More

Crude Oil Swooping Up On Schedule

 
weekly Chart In Focus

The movements of gold prices lead similar movements in crude oil about 20 months later.  So if you watch what gold has already done, you can see the script for what oil prices are going to do.

It does not work perfectly; it is merely amazing, not perfect. 

Crude oil prices had a brief swoon, dipping to $59/barrel in early February.  That matched a brief dip in gold prices 20 months earlier in May 2016.  Now oil prices are recovering, just as gold recovered to its July 2016 top.  But the... Read More

High Grade Bond Summation Index Oversold

 
weekly Chart In Focus

The world was convinced that inflation was imminent, that bond yields were rising, and thus that investors ought to dump anything bond related.  The 10-year T-Note was assuredly headed north of 3%, people were going to stop taking out mortgages, companies were going to stop investing, and inflation was going to be the “new normal”. 

But wait!  That sentiment appears to have been overdone, and bond prices got oversold.  We can measure the oversold condition of T-Bond prices in a large... Read More

A Follow-Up On 3 Charts

 
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We are at a fascinating turning point in the market’s path, and it is worth reviewing some recent Chart In Focus stories to see how they turned out, and to look at what might lie ahead.  I usually refrain from doing reruns, but in each case there is new information that I find interesting, and which I have already shared with our McClellan Market Report and Daily Edition subscribers.  I hope you will find them interesting too.  So here goes.

Back on Feb. 15, I wrote about “Stock Market In a... Read More

It’s the Fed, Yanking The Punchbowl

 
weekly Chart In Focus

We were having a perfectly nice low-volatility uptrend until Jan. 26, and everyone was happy.  Since then, the inverse VIX ETN known as XIV has blown up (a great case of a “burning LOH” marker), and traders are starting to remember that stock prices actually can go down.  So why now?

As with most bear markets and recessions, the blame goes to the Federal Reserve, which decided last year that it would start unwinding all of the QE buying of T-Bonds and Mortgage Backed Securities (MBS) that... Read More

Volatility and Interest Rates

 
weekly Chart In Focus

Why is the VIX spiking now?  Because now is when it is supposed to do that.

Volatility and interest rates have an interesting relationship, going back many years.  Higher interest rates pull money away from the stock market, and thus make it so that prices have to travel farther to find liquidity, after a positive or negative stimulus.

The word “volatility” gets thrown around a lot in our business.  We should all remember that it gets borrowed from the world of chemistry.  It refers to... Read More