lighthouse weekly chart window - 2013-07-22

7/28/2019 Lighthouse Weekly Chart Window - 2013-07-22

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Lighthouse Investment Management

Weekly Chart Window - July 22, 2013

Contents

TIPS-derived Inflation Expectations .............................................................................................................. 3

Stock Market and TIPS-Derived Inflation Expectations ................................................................................ 4

Trend: Moving Averages ............................................................................................................................... 5

Trend: MACD ................................................................................................................................................. 6

Stocks Above 50-Day MAVG ......................................................................................................................... 7

Stocks Above 200-Day MAVG ....................................................................................................................... 8

Net New Highs: NASDAQ .............................................................................................................................. 9

Net New Highs: NYSE .................................................................................................................................. 10

New Highs/Lows Ratio: NASDAQ ................................................................................................................ 11

New Highs/Lows Ratio: NYSE ...................................................................................................................... 12

Risk-on / Risk-Off ........................................................................................................................................ 13

Lighthouse Timing Index ............................................................................................................................. 14





TIPS-derived Inflation Expectations

Observations:

• Inflation expectations are calculated by subtracting real (TIPS) yields from nominal yields

• Despite the recent decline in nominal yields, inflation expectations have increased a bit (real yields

have fallen faster than nominal yields, increasing inflation expectations)

• The Fed is not happy about reduced inflation expectations, as it does not force consumers to spend.

A slowing velocity of money further counters the efforts of the Fed.

• Recent talk from Bernanke about possible 'tapering' of QE later in 2013 led to doubts regarding theFed's policy of N-GDP targeting, only adopted in late 2012.

• CONCLUSION: In order for a successful transition, Bernanke's successor (likely Janet Yellen) needs a

'good' reception from markets. The current setback in bonds might therefore be actually wanted /

engineered by the Fed in order to create some upside potential for asset prices.





Stock Market and TIPS-Derived Inflation Expectations

Observations:

• Since January 2012, the S&P 500 is basically uncorrelated to the yield of 10-year Treasury bonds (r2 =

0.02), but very much correlated to the expected rate of inflation over the next 10 years (r2

= up to

0.75).

• Since mid-February 2013, the strong correlation between expected inflation and the S&P 500 Index

has reversed into a negative one. This is quite unusual.

Conclusion:

• Assuming the bond market (despite price manipulation by the Fed) correctly reflects marketexpectations, the S&P 500 should be closer to 1,400 points given inflation expectations.

y = 207.15x + 967.43

R² = 0.1075

1,200

1,300

1,400

1,500

1,600

1,700

2.00 2.10 2.20 2.30 2.40 2.50 2.60

S &

P 5 0 0 I n d e x

10-year expected inflation rate

S&P 500 Index and expected inflation

Source: Federal Reserve Bank of St. Louis,own

calculations. Data since 1/3/2012.

(c) Lighthouse 2013

2/12/2013

7/18

R2 [1/2012-2/2013] = 0.75





Trend: Moving Averages

Observations:

• All moving averages have a positive slope (pointing upwards) • The 10-day mavg is above all other averages - a good sign

Conclusion:

• The uptrend is still intact

1,100

1,200

1,300

1,400

1,500

1,600

1,700

May-2011 Nov-2011 May-2012 Nov-2012 May-2013

S&P 500 Index, moving averages

SPX (10d mavg) SPX (50d) SPX (100d) SPX (200d)

(c) Lighthouse 2013





Trend: MACD

Observations:

• The S&P 500 Index is around 7% above its 200-day moving average, which is still quite 'extended'

• The S&P is less extended from its 100-day moving average (which is to be expected, as shorter

averages tend to follow the index more quickly)

• All three derivatives of moving averages have bottomed, suggesting the stock market is gainng

momentum.

Conclusion:

• The US stock market 'worked off' its extended condition, especially from the 200-day moving

average. After breaking new all-time highs, the market looks like it would move higher yet.

1,100

1,200

1,300

1,400

1,500

1,600

1,700

-12%

-8%

-4%

0%

4%

8%

12%

May-2011 Nov-2011 May-2012 Nov-2012 May-2013

MACD (moving average convergence / divergence)

SPX (10d mavg) MACD (50d, 20d) MACD (100d, 20d) MACD (200d, 20d)

(c) Lighthouse 2013





Stocks Above 50-Day MAVG

Observations:

• 77% (previously 62%) of the 500 stocks within the S&P Index are above their 50-day moving average

Conclusion:

• More than half of the S&P 500 members are in a medium-term uptrend. This is a good sign.

• Any reading below 50% indicates trouble for the bulls.

1,050

1,150

1,250

1,350

1,450

1,550

1,650

0

20

40

60

80

100

Aug-2010 Feb-2011 Aug-2011 Feb-2012 Aug-2012 Feb-2013

% of S&P 500 stocks above 50-day moving average

SPX (10d mavg) %>50d mavg 50a 30d

(c) Lighthouse 2013

Correlation: 0 t+60, 0.10 real-time





Stocks Above 200-Day MAVG

Observations:

• 89% (previously 86%) of the 500 stocks within the S&P Index are above their 200-day moving

average

Conclusion:

• More half of the stocks in the S&P 500 Index are in a long-term uptrend. This is a healthy sign.

• A drop below 50% would indicate trouble.

1,050

1,150

1,250

1,350

1,450

1,550

1,650

1,750

0

20

40

60

80

100


% of S&P 500 stocks above 200-day moving average

SPX (10d mavg) %>200d mavg 200s50

(c) Lighthouse 2013





Net New Highs: NASDAQ

Observations:

• The number of Nasdaq-listed stocks with new 52-week highs exceeds the number of stocks with

new 52-week lows.

• This means the current record highs for the S&P 500 Index are supported by a large number of

individual stocks.

Conclusion:

• The rally has a good 'breadth'. No warning flag.

1,050

1,150

1,250

1,350

1,450

1,550

1,650

-5,000

5,000

15,000

25,000

35,000


$NAHL: Nasdaq net new 52-week highs

SPX (10d mavg) NAHLc NAHLc 30d

(c) Lighthouse 2013

Reliability: medium





Net New Highs: NYSE

Observations:

• The number of NYSE-listed stocks with new 52-week highs is higher than the number of stocks with

new 52-week lows.

Conclusion:

• The breadth of the recent stock market rally has improved further.

1,050

1,150

1,250

1,350

1,450

1,550

1,650

0

25,000

50,000

75,000

100,000

125,000


$NYHL: NYSE net new 52-week highs

SPX (10d mavg) NYHLc NYHLc 30d

(c) Lighthouse 2013

Reliability: better than NAHL





New Highs/Lows Ratio: NASDAQ

Observations:

• Nasdaq-listed stocks with new 52-week highs exceed the number of stocks with new 52-week lows

by a ratio of 13:1, with a rising trend (previously = 9:1).

• The ratio has exceeded its previous peak, which can be interpreted as a sign ofstrenthening.

Conclusion:

• A fall in the ratio below 1 would indicate trouble. This is currently not the case.

• The ratio is above its 50-day moving average - a good sign.

1,050

1,150

1,250

1,350

1,450

1,550

1,650

0.1

10.0


$NAHLR: Nasdaq new highs/new lows ratio (log)

SPX (10d mavg) NAHLr 20d NAHLr 50d

tops 15-20

bottoms 0.15-0.20 in bear mkt, below 1.00 in bull

Reliability: good, but too e arly. Very similar to $NAHLR.

Very good reliability us ing the slope of the NAHLr 50d

(c) Lighthouse 2013

1.0





New Highs/Lows Ratio: NYSE

Observations:

• NYSE-listed stocks with new 52-week highs exceed the number of stocks with new 52-week lows by

a ratio of 7:1, with a rising trend (previously = 5.3:1).

• The rally since the beginning of 2013 has been accompanied by falling peaks in the ratio, which can

be interpreted as a sign of weakening.

• As a lot of fixed-income ETF's are listed on the NYSE they distort the picture (bond ETF's often rise as

stocks fall).

Conclusion:

• The ratio has caught up with its 50-day moving average - a good sign.

1,050

1,150

1,250

1,350

1,450

1,550

1,650

0.5

50.0


$NYHLR: NYSE new highs/new lows ratio (log)

SPX (10d mavg) NYHLr 20d NYHLr 50d

(c) Lighthouse 2013

5.0





Risk-on / Risk-Off

\

• The general market (SPY) is underperforming high dividend shares (SDY), (red line, bearish)

• Stocks are outperforming bonds (blue line, bullish)

• The high-yield bond ETF (HGY) is outperforming investment-grade ETF (LQD); green line (bullish)

• Equal-weight ETF (RSP) is outperforming market cap-weighted ETF (SPY); green area (bullish)

CONCLUSION: 3 out of 4 indicators suggest stock market is in an uptrend





Lighthouse Timing Index

Observations:

• The Lighthouse Timing Index rose to +8 (previously: +4 points)

Conclusion:

• Our composite index suggests that the upwards trend is intact.

Note: This index is a trend-confirming indicator, and will not be able to anticipate market tops or

bottoms in advance. Due to smoothing of data, a certain time lag of about two weeks is to be expected.

1,050

1,150

1,250

1,350

1,450

1,550

1,650

-12

-8

-4

0

4

8

12


Lighthouse Timing Index "Trend"

LIM-T SPX (10d mavg)

(c) Lighthouse 2013

SHORT

LONG





Any questions or feedback highly welcome.

[email protected]

Disclaimer: It should be self-evident this is for informational and educational purposes only and shall not be

taken as investment advice. Nothing posted here shall constitute a solicitation, recommendation or

endorsement to buy or sell any security or other financial instrument. You shouldn't be surprised that

accounts managed by Lighthouse Investment Management or the author may have financial interests in any

instruments mentioned in these posts. We may buy or sell at any time, might not disclose those actions and

we might not necessarily disclose updated information should we discover a fault with our analysis. The

author has no obligation to update any information posted here. We reserve the right to make investment decisions inconsistent with the views expressed here. We can't make any representations or warranties as to

the accuracy, completeness or timeliness of the information posted. All liability for errors, omissions,

misinterpretation or misuse of any information posted is excluded.

+ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +

All clients have their own individual accounts held at an independent, well-known brokerage company (US)

or bank (Europe). This institution executes trades, sends confirms and statements. Lighthouse Investment

Management does not take custody of any client assets.

lighthouse weekly chart window - 2013-07-22

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