In accordance with a
new dynamic that has emerged in
the markets, stock index, metal, currency and commodity ETFs continued
to rally but there is a notable change from similar past situations.
This time bonds also rallied. Was this just a short-term reaction due to
the interest rate policy announcement of last week or something else is
going on?
We may have to wait one or two more weeks before an answer can be given but in my opinion the negative correlation between
bonds and stocks will be a tough one to break. This negative
correlation is important about the future of the economy but the details
are beyond the scope of this report. As of the close of Friday, the
120-day rolling correlation between SPY and TLT was at a historical
minimum of -0.78. In my opinion the risk of another market correction is
high as long as this correlation remains below -0.50.
ETF Trend State Table
| ETF | Short-term | Medium-term | Longer-term | OB/OS |
| SPY | SW- | UP | SW | |
| QQQ | UP | UP | UP | * |
| GLD | UP | SW | SW | * |
| SLV | UP | SW | SW | * |
| FXE | UP | DN | DN | |
| TLT | SW+ | SW | SW | |
| USO | SW+ | SW | SW | |
| DBC | UP+ | SW | DN | |
"SW" indicates no trend, "+"
indicates a new upward trend change, "-" indicates a new downward
trend change, "OB" means overbought and "OS" means oversold. "OB-" means
close to becoming overbought and "OS+" means close to becoming
oversold. The ‘*' means that the corresponding market is under watch for
developing conditions.
Summary of trend changes
Short-term: SPY downgraded to sideways motion. TLT and USO upgraded to sideways motion. DBC on an uptrend.
Medium-term: No changes.
Longer-term: No changes.
Number of changes on the trend table: 4
Overbought/Oversold Conditions: QQQ, GLD and SLV on watch for possible oversold conditions next week.
Disclosure: no relevant positions.