24, September 2018
Association of Technical Market Analysts, BOMBAY STOCK EXCHANGE
Integrity • Intellect • Inspiration
Expand your Technical Analysis expertise.
Connect & network with recognized experts
  • Education
  • Guru Speak
  • Chart In Focus - Tom McClellan

Tom McClellan

Chart In Focus

Crude Oil Swooping Up On Schedule

 

Chart In Focus

 

March 22, 2018

 

 

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 recovery in oil prices should only be a brief one, as gold’s chart plot shows a big decline ahead for oil prices.

There is agreement in this next chart for that thesis that oil prices are headed lower.

crude oil backwardation

Right now, the near month contract is around $64, but if we look out a year then we see distant month contracts at $59.  That’s the crude oil futures market saying that the near month prices are too high, a condition known as “backwardation”.  And it tends to lead to lower oil prices in the months which follow, just like gold says should happen.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
93 Hits

Tom McClellan

Chart In Focus

High Grade Bond Summation Index Oversold

 

Chart In Focus

 

March 14, 2018

 

 

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 variety of ways, but this week’s chart looks at a different set of data to get a unique insight. 

FINRA publishes Advance-Decline data on corporate bonds every day at this site. They break it down into “Investment Grade”, “High Yield”, and “Convertible”. 

The High Yield A-D data have great interest for me in terms of the messages they can give for the stock market.  See this prior Chart In Focus article.  And the Investment Grade A-D data have importance for what lies ahead for T-Bond prices.

This week’s chart looks at a Ratio-Adjusted Summation Index (RASI) for the Investment Grade bond A-D data.  The qualifier of it being a “Ratio-Adjusted” Summation Index means that a mathematical adjustment has been made to factor out changes in the numbers of issues traded.  See this link for an elaboration on the math, if you are interested.  The short version of the description is that this process makes long term comparisons more meaningful. 

The Summation Index measures the acceleration which takes place in the A-D statistics.  This can convey several messages, depending on the context.  The message right now is that the high grade area of the bond market has gotten extremely oversold, and thus at least a bounce is due right now.  Plus, a larger up move is in the script for later.

The FINRA bond A-D data only go back as far as 2005.  We wish we had perfect data farther back.  Barron’s used to carry A-D data on “corporate bonds” (without elaboration), which we have kept for those many years.  Here is a lookback at that data:

Bond A-D LIne 1991-2002

The numbers of issues back then were much smaller, but we can still see the relationship to T-Bond prices.  It is not perfect, of course, and it missed a lot of the turns which came in T-Bond prices.

The more current data seem to be better and more useful.  And the application of the math of the McClellan Summation Index makes it even more useful.

We just saw a very low reading in the high grade bonds RASI, nearly the equal of the low seen in 2013.  This is a message that the corporate bond market has become very oversold.  But it is not an unequivocal message about what comes next.

Sometimes a very low RASI reading like this marks an exhaustive bottom for T-Bond prices.  But other times there needs to be another price dip before the final low is in, and prices are free to trend upward.  Given the small sample size of instances since the data begin in 2005, I have not figured out a way to tell the difference between the two types of outcomes.  So for now, while we see the big fat oversold reading on the RASI, I cannot prove yet that a retest of the price low is off the table. 

The takeaway point is that even if there is a retest of the price low, we still can expect higher T-Bond and high grade corporate bond prices in the weeks and months ahead.  And that will frustrate the legions of analysts expecting higher inflation and higher interest rates.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
97 Hits

Tom McClellan

Chart In Focus

A Follow-Up On 3 Charts

 

Chart In Focus

 

March 08, 2018

 

 

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 Editionsubscribers.  I hope you will find them interesting too.  So here goes.

Back on Feb. 15, I wrote about “Stock Market In a Rogue Wave”.  Rogue waves are a rare and peculiar phenomenon, both in the ocean and in other areas involving flow.  The main points are that a rogue wave borrows energy from adjacent waves to build to a much greater height than the surrounding chop.  And the height of the crest tends to be matched by the depth of the adjacent trough.  After the rogue wave goes by, the fluid returns to the nominal level, or “sea level”, which in the stock market is harder to discern. 

In the case of the DJIA’s rogue wave, the “sea level” equivalent is the trend which was in effect before the upward swoop and adjacent mini-crash.  That trend is depicted by a median line shown in the top chart this week.  The dead-cat bounce made it back almost exactly to the median line, and so the mission of the post rogue wave period has now been accomplished.  What happens next is not part of this model of stock price behavior.


 

Back on Jan. 25, I wrote about “Finally, An Actual Use For Bitcoin” noting that the price pattern in Bitcoin during 2017 was getting replicated in the movements of the DJIA.  Here is an update of that chart:

DJIA Following Bitcoin's Pattern

Right after I wrote that article, the pattern correlation broke down about as badly as it can, inverting to a DJIA bottom at the point when the Bitcoin price pattern said a top should occur.  And then the DJIA rebounded, but in a way that makes it appear that the DJIA is working to get back on track with Bitcoin’s chart pattern rather than staying inverted. 

This is a classic case of my #1 Rule of Technical Analysis, which holds that “A phenomenon will remain in effect only until noticed.”  (And if you write about it, it will tend to fail.)

Bitcoin’s price plot was likely skewed by the anticipation of the introduction of Bitcoin futures trading which commenced Dec. 15, 2017.  Once futures trading got going as a real part of Bitcoin’s path through the universe, the relationship seems to have returned to being a case of following market forces, and thus the message of what’s ahead for the DJIA went back to working again. 

If it keeps on working into the future, then the DJIA is facing a bottom in early April.  I think that bottom will actually arrive a bit earlier, as discussed in the latest issue of our twice monthly McClellan Market Report newsletter.  But the continued Bitcoin weakness is not good news for the bulls, assuming that the relationship really does hold up. 


 

Back on Jan. 18, I wrote about a fun way of seeing the DJIA’s chart pattern in “Ending How It Began (Parabolically)?”  I compared it to a musical composition by Beethoven which two violinists could play from the same piece of sheet music, each reading the notes upside down from how the other one saw it.

Here is how that comparison turned out:

DJIA 2008-18 backwards

As that article hypothesized, the March 2009 bottom seems to have seen its echo in the Jan. 26, 2018 top.  The red line in this chart is the same as the black line, just rotated 180°.  If the pattern correlation continues to “work”, and that is a big IF, then stock prices have further to fall. 

It is fun finding the ways in which the market reveals its intentions about the future.  Such insights do not necessarily continue to work as one expect them to, and so they do not deserve our unquestioning confidence.  But they sure are fun sometimes.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
102 Hits

Tom McClellan

Chart In Focus

It’s the Fed, Yanking The Punchbowl

 

Chart In Focus

 

March 02, 2018

 

 

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 it had bought up from 2009-14.  Last year, the Federal Reserve under Janet Yellen announced plans to start liquidating those bond and MBS holdings, starting at a rate of $10 billion per month in Q4 of 2017, and ramping up that rate by an additional $10 billion in every quarter to follow.  So the target rate of sales for Q1 2018 is $20 billion per month, and it is supposed to ramp up to $30 billion per month in Q2, then $40 billion per month in Q3, eventually peaking at a $50 billion per month rate in Q4 and beyond. 

Selling bonds into the open market means that the banking system has to give up “money” to pay the Fed for the bonds and MBS that the Fed is selling.  I’m not going to get into a discussion about the various definitions of “money”, and how it is all just a ledger exercise.  But it is clear that the selling of bonds by the Fed reduces the amount of liquidity in the banking system, which has effects on the ability of stock prices to remain at lofty levels.  And it probably does not help to have the Treasury Department doing its own bond sales at a higher rate. 

The stock market is not taking this well, which should not be a surprise.  Part of the market’s indigestion may come from the lumpy way that the Fed’s balance sheet is changing.  It is not a smooth, gentle glide path, but rather a sawtooth pattern which tends to introduce turbulence into the banking system.  That turbulence flows through into stock prices, as we are seeing. 

These amounts might seem like they should be inconsequential, especially for a stock market which trades $100-200 billion of stock every day.  But the top chart shows that the Fed’s actions do seem to matter, and the drops in the Fed’s balance sheet are coinciding with the big weekly drops for stock prices. 

Even at this higher rate of bond sales, the Fed still has a long way to go to unwind its balance sheet, which at its peak stood at $4.25 trillion worth of T-Bonds and MBS.  In this larger chart, one can barely even detect the reductions which have taken place thus far:

Fed assets over time

But we can see how stimulative to stock prices it was to have had QE1, 2, and 3.  And each time those were just stopped, the market ran into an illiquidity problem.  The May 2010 Flash Crash followed the cessation of QE1.  When QE2 was stopped in June 2011, we got a 19% decline in July 2011. 

The Fed ended QE3 more slowly, “tapering” the size of its bond and MBS purchases very gradually before ending them completely in late 2014, but we still got the China minicrash in August 2015, and an aftershock in January 2016.  Those events all arose not from any actual unwinding of bond holdings, but just from stopping the buying. 

It is illustrative to look back to 2007-08, when the Fed actually did a series of T-Bond sales.  Under the leadership of the then-president of the New York Fed, Timothy Geithner, the Fed reduced its holdings of T-Bonds from a high of $791 billion in August 2007 to a low of $475 billion in March 2009.  It is a bit of a mystery exactly why the Fed thought it was a good idea to sell bonds and take money out of the banking system during the worst liquidity crisis in decades.  But that 2007-09 bear market did help secure the election of President Obama, who then appointed NY Fed President Geithner as his Treasury Secretary, so you can insert your own conspiracy theory here. 

My expectation for 2018 is that the officials at the Federal Reserve are eventually going to realize that their proposed accelerating rate of bond sales is having an adverse effect, and they will alter their course.  But they are not going to realize that for a while, and so stock investors are in for a much wilder ride in 2018 than what they have become accustomed to.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
99 Hits

Tom McClellan

Chart In Focus

Volatility and Interest Rates

 

Chart In Focus

 

February 23, 2018

 

 

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 the amount of reaction you get for a little bit of input.  Asphalt is made from tar, which is flammable.  But if you drop a lit match onto asphalt, the match will flame out.  Asphalt is not very volatile.

If you drop a lit match onto a puddle of 30-weight motor oil, it might burn, or it might swallow the match.  If it burns, it won’t do so very fast.  30W oil is NOT very volatile.

Now if you drop a lit match onto a puddle of gasoline, you’re going to need to grow some new eyebrows.  You’ll get a big FAWOOMP!!, as well as a talking-to from the firefighters who come to bandage you up.  Gasoline is very volatile.

In each of these cases, the input stimulus is the same… a lit match. The response varies, though, according to the nature of the organic chemistry of the medium into which the match is dropped. 

The stock market is very much the same.  A news item which might get no reaction in some periods gets a huge reaction in others.  The volatility of the market varies, and for reasons which seem entirely mysterious on the surface.  But if we find the key to unlock this mystery, the variability of volatility starts to make more sense. 

This week’s chart compares the 3-month T-Bill yield to the spot VIX Index, which is shown on a logarithmic scale.  This is a relationship I uncovered years ago, and which I have talked about in our twice monthly McClellan Market Report.  But it has not been ripe to talk about here until just now, because the Fed has had its boot on the neck of the bond market until just recently.  By finally allowing short term interest rates to start rising again a couple of years ago, the Federal Reserve set the stage for volatility to start rising now. 

Movements in the VIX seem to lag movements in the 3-month T-Bill yield by about 2 years.  We are now just over 2 years advanced from the Dec. 16, 2015 FOMC meeting, when the Fed finally allowed the Fed Funds rate to be lifted from the “0 to 0.25%” target.  And right on schedule, we got a volatility spike on the 2-year echo point of that change.

Why is it that 2 years is the magical lag time?  I really don’t know.  But I do know that a 2-year lag time has been a good explainer of the VIX’s movements for the last couple of decades, and so at some point I stop questioning it, even if I don’t have the “why”. 

The chart plot of the 3-month T-Bill yield shows an upward rise, but it really did not get started until December 2015.  Adding 2 years gets us to December 2017.  The spike in the VIX was just over a month late, coming in late January to early February 2018. 

Now that we have that spike, what’s next?  The plot of the 3-month T-Bill yield says that the VIX should pause for a while, and then start trending upward late in 2018.  We have been through higher T-Bill rates before, and we’ll get through this upcoming episode.  But the point to understand is that the era of single-digit VIX numbers is behind us.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
99 Hits

Tom McClellan

Chart In Focus

Stock Market In a Rogue Wave

 

Chart In Focus

 

February 15, 2018

 

 

The stock market is just coming out of a big rogue wave event.  And that gives us clues about what lies ahead.

The term “rogue wave” gets used in other areas of science, most notably in analysis of big waves in the ocean.  But they can occur in any medium where wave action is present, not just the ocean.  They have even been observed in the transmission of light waves through fiber optic cables.

Rogue waves in the ocean get a lot of attention, especially from ship designers who need to make a hull and keel that are strong enough not to be broken by them.

Rogue wave threatens a ship

A German research project known as MAXWAVE, funded by the European Commission, studied the phenomenon of oceanic rogue waves, and it had several findings that are relevant.  First, a rogue wave seems to “borrow” energy from adjacent waves to build to a much greater height than the surrounding chop.  Second, the height of the crest of the rogue wave above “sea level” is usually matched by the depth of an adjacent trough, making such waves all the more destructive to ships.

The third, and perhaps most significant finding, is that, “ship accidents were found to happen mainly in fast changing sea state conditions and in cases of crossing seas,” according to a paper by W. Rosenthal of the Institute of Coastal Research in Geesthact, Germany.  I will get to why this point is relevant below.

This diagram shows data from that MAXWAVE study, depicting the actual wave height of a rogue wave passing an oil drilling platform.

rogue wave plot

Notice that the peak and the trough are roughly equidistant from sea level.  And that after the wave and trough pass by, the sea state returns back to sea level, with roughly even peaks and troughs afterward.

Rogue waves also occur in the financial markets.  When I saw that MAXWAVE diagram a few years ago, it immediately reminded me of the 1929 stock market peak and the ensuing chaos.  So I put together the twin images that I could see in my head, the better to see them together on the screen:

rogue wave in 1929

When applying this principle to the financial markets, the idea of “sea level” requires a little bit of interpretational latitude.  Markets are not level, and they trend upward and downward.  So if you substitute the idea of sea level with the word “trend”, then it all makes more sense.

Note in that comparison that in the 1910s and 1920s, there were normal oscillations above and below a median line.  Then in the early 1920s, the oscillations quieted down, as the building rogue wave started to steal energy from the normal wave oscillation of stock prices.  The price peak in 1929 was way above that median line, and then the trough in 1932 was equidistant below it (on this log-scaled chart).  Afterward, the DJIA went back to oscillating up and down around the median line again. 

The 1929 peak also fits the model of oceanic rogue waves by marking a “change in sea state”, ushering in a Great Depression, and fundamentally changing the banking system, the value of the dollar versus gold, the practices of workforce versus management, and other huge elements of how the economy operates.  It also led to another world war.

That is of course not the only example of a rogue wave.  The oil price peak in 2008 provides us another textbook example of this principle:

rogue wave in crude oil

Note that prices saw normal oscillations above and below the median line, or trend.  But then something changed around 2007, leading to the big blowoff up move to $145/barrel in July 2008, followed by the equally big drop to $35 in December 2008.  And after that low, crude oil prices returned back to the preceding trend, as a way of getting back to sea level.

In this example with crude oil prices, there is an additional cool element, in that there was a new equilibrium channel established after the 2008 low, and that channel saw its own miniature rogue wave in 2011.  But all of this was part of a change in the “sea state” of the oil market, as fracking came to be a major factor, and OPEC eventually lost control of oil production quotas in 2014. 

Coming back to the current day situation in the stock market, we have been seeing a steep uptrend in the stock market since the 2016 election.  A steep uptrend makes it difficult to define “sea level”, or the trend for prices to return back to.  But if we employ a plot of the SP500’s deviation from its 50-day moving average, that factors out the uptrend in prices and lets us see the wave action.  Here is a plot of that deviation from the 50MA, compared to the MAXWAVE pattern:

rogue wave with 50MA deviation overlay

The events in this rogue wave are obviously unfolding far faster than in the 1929 example.  But the concept of fractal structures occurring on different time scales is nothing new in technical analysis.  The stock market's mission from here is to get back to “trend”, whatever that is going to mean this time.  It probably does not mean a surge to a higher high than the Jan. 26, 2018 price top, but just getting back up to the trend shown in the top chart would be quite a nice rebound.

And the final point, about rogue waves occurring at a change of sea state, provides us a lesson about what lies ahead.  The summer of 2018 is not likely to see a continuation of the “Trump Trend” off of the 2016 elections.  It is time to start being a market timer again.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
102 Hits

Tom McClellan

Chart In Focus

Big Change In Bull-Bear Spread

 

Chart In Focus

 

February 09, 2018

 

 

The latest data from Investors Intelligence showed a huge change this week.  Bulls dropped from 66% to 54.4%, and bears rose from 12.6% to 15.5%.  That means the spread between bulls and bears dropped by 14.5 percentage points, which is the biggest one-week drop since July 2011.  Drops of more than 6 percentage points usually mark washout bottoms for prices. 

That July 2011 drop in the bull-bear came as prices crashed down 19%, following the sudden cutoff of QE2.  And there was a similar 14.5 percentage point drop in May 2010, the week of the Flash Crash which occurred after the sudden end of QE1.  The Fed learned from its mistakes, and it wound down QE3 much more slowly.

But all of that extra money was left within the banking system, and investors got used to the plentiful liquidity and low volatility that the excess liquidity brought.  So now, when the Fed is starting to drain the bathtub, the smallest little drop in the Fed’s balance sheet has brought an outsized drop in stock prices, and a corresponding sudden drop in analyst bullishness.

Fed assets

The $10 billion per month in reduction of Federal Reserve holdings of T-Bonds and mortgage backed securities (MBS) which was in effect in Q4 of 2017 has now accelerated to a target of $20 billion a month for Q1 of 2018.  But they did the month’s allotted drop all in one week at the end of January, setting up the illiquidity situation that the stock market is going through now. 

The Investors Intelligence sentiment data is very sensitive to price movements.  So it is natural that a big drop like what we have seen would bring a big drop in the bull-bear spread.

Investors Intelligence Bull-Bear Spread

The change from the prior week takes the bull-bear spread down from above the upper 50-1 Bollinger Band to below the lower one.  It is still not a “low” spread reading, meaning that the value is not as low as what we have seen at important price lows over the past 2 years.  But it is a drop well below the lower band, which is where price lows are found.  And the big one-week change suggests that the down move we have seen in stock prices is exhaustive, meriting a rebound.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
100 Hits

Tom McClellan

Chart In Focus

VIX Spike Takes it Above All of its Futures

 

Chart In Focus

 

February 03, 2018

 

 

The scary selloff on Friday, Feb. 2 took price indicators down to oversold readings, and it took the VIX up to its highest reading since the November 2016 election.  In the process, it also rose up above the price of all of its futures contracts.  In an uptrend, that is a pretty rare occurrence. 

The VIX Index is determined by how much volatility premium is getting priced into SP500 options, and so it reflects the relative degree of fear being felt by options traders.

VIX futures are different, and do not have a tie-in to any physical product, or even to any investment product.  VIX futures are settled for cash at the VIX Index’s value on the day of expiration.  And so the price of any VIX futures contract is based simply on the bets that the VIX futures traders are willing to make.  Seeing the VIX Index up above the level of all of the VIX futures contracts means that SP500 options traders are feeling more fearful now than the VIX futures traders think is warranted.VIX futures quote Feb 2 2018

Most of the time, the VIX Index stays below all of its futures contracts.  The futures traders have to price in a little bit of time-risk, in case the VIX Index rises by the time that the contract reaches expiration.  As that expiration gets closer, the price of a VIX futures contract will slowly move toward wherever the VIX Index is. 

During scary price declines, though, things get out of whack and the VIX Index can rise up above the level of some or all of its futures contracts.  This week’s chart shows those instances, and they are pretty rare. 

In a corrective period like what we saw in late 2015, after the China-induced minicrash, we can see multiple days of the VIX being above all of its futures contracts before the market finally reaches a bottom.  But when the SP500 is in an uptrend, like what we are arguably still in right now, these instances nearly always mark nice short term bottoms for stock prices.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
96 Hits

Tom McClellan

Chart In Focus

Finally, An Actual Use For Bitcoin

 

Chart In Focus

 

January 25, 2018

 

 

Bitcoin and the other cryptocurrencies have captured the hearts of millennial speculators around the world.  Their grandfathers may have traded gold during the run-up to gold’s big blowoff top in 1980, and their parents may have traded Internet stocks in the late 1990s, but the young hipsters want to play a more modern bubble for their “It’s different this time” denial. 

Bitcoin was designed as an online medium of exchange, so that customers could use it to pay vendors for goods and services.  Its primary use lately has turned into being a speculative trading vehicle.  But lengthy transaction times and high fees are starting to take the bloom off of Bitcoin’s rose as a transaction medium, and the price is showing that diminishment of interest.

And as this week’s chart shows, Bitcoin’s price plot also shows us something else: a leading indication of what the DJIA is going to do a couple of months later.  In this chart, I have shifted the price plot of Bitcoin forward by 8 weeks (56 calendar days) to reveal how the DJIA is following in Bitcoin’s footsteps. 

This chart goes all the way back to the autumn of 2016, when Bitcoin was still trading around $600.  The leading indication effect really did not start showing up until around February 2017, when the price was closing in on $1000.  That seems to be when the big speculation frenzy in Bitcoin started, and thus when it began modeling the same sort of waxing and waning of interest people have in the stock market. 

Usually when analysts do price pattern analogs, we employ a prior period from the same market index’s history, such as comparing the current SP500 price plot to that of 4 years ago.  For example, see The Unexplainable 4-Year Rerun.  

But there is precedent for using another market’s price behavior to model prices in a different market, especially during a bubble.  The dynamics of how human emotions react to a speculative bubble remains largely the same from one bubble to the next, since our brains do not change.  Years ago in our McClellan Market Report newsletter, we showed this next chart, illustrating how the 2007-08 commodities bubble strongly resembled the Internet Bubble of 1999-2000.

CRB Index 2008 top versus Nasdaq 2000 top

Throughout the CRB Index’s advance in 2007-08, it closely matched the dance steps seen in the Nasdaq Comp during 1999-2000.  And as the CRB Index’s collapse started, it also matched the Nasdaq’s path downward.  Eventually that pattern correlation broke up, as happens with all pattern analogs eventually.  The point is that the dynamics of humans’ reactions to price bubbles remain the same from one bubble to the next, and that shows up in the resemblance between the price patterns. 

So here in 2018, we have a collapsing Bitcoin bubble, but a still-intact stock market bubble, as evidenced by high valuations, the lack of meaningful drawdowns (dip-buying), and a nearly parabolic price plot.  The DJIA’s movements are matching those of Bitcoin 8 weeks prior.  Why 8 weeks?  That’s a fun question, but not an essential one to answer for us to be able to observe and digest this behavior. 

My eurodollar COT model says that a major price top for the U.S. stock market is ideally due in early March, as discussed in our latest McClellan Market Report newsletter.  But Bitcoin’s chart implies that the corresponding top is due a bit earlier, in February.  The real answer may lie somewhere between the two.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
92 Hits

Tom McClellan

Chart In Focus

Ending How It Began (Parabolically)?

 

Chart In Focus

 

January 18, 2018

 

 

There is a lot of talk lately about the market “going parabolic”.  Most of the time when that term is used, people are thinking about prices swooping upward like the main cable on a suspension bridge, with each additional lateral increment seeing increasing vertical increments.

But a parabola can also be seen in the path of a bouncing ball, which goes up the fastest at first, and then stalls out at the apex of its rise.  If you turn upside down a plot of a bouncing ball, you’ll get a pattern resembling a suspension bridge.  Parabolas are the same, even if turned upside down.

That’s the point behind this week’s chart, which I created this week just because it occurred to me that the pattern of the DJIA looked like it was repeating itself now, but upside down and backwards.  

It has long been rumored that if you play certain Beatles songs backwards, a technique known as “backmasking”, you can hear secret messages, including the revelation that “Paul is dead” (he’s not, by the way, last I checked).  This led to the joke that if you play a country music song backwards, your wife will come back to you, your truck will start running again, and your dog will come back to life.

When I was a kid I took violin lessons and my teacher Mr. Conway had me play a Beethoven duet with him that was a musical joke. The single sheet of music was placed on a table between two violinists, each of whom reads the music from what they saw as the top of the sheet, and ending up at the bottom which was the other guy’s top, but with the notes in the score upside down. Beethoven could make that work musically, and in the top chart I pay homage to Beethoven by playing the DJIA’s song backward.

If you look closely, you can see lots of moments of coincidence in the minor price patterns, which makes this comparison really interesting. There are also a few instances of pattern inversion, which is pretty normal in any analog comparison.  By this way of looking at the DJIA’s pattern, the current blowoff upward in prices is the echo of the up move out of the 2009 bottom.  That up move ended when QE1 was shut down, and it led to the Flash Crash of 2010.  The implication is that the 2015-16 correction was the corollary to the Flash Crash, and now we are playing back the rally out of the 2009 bottom.

This is admittedly an irregular way of portraying a price analog, and full of peril in drawing conclusions about what we see continuing.  But it is still a fun chart.  I do not have prior evidence that this is a legitimate form of chart analysis.  It just seems to be working at the moment.  And as I reveal it now to the world, I remind myself of my #1 Rule of Technical Analysis, which holds that “A phenomenon will remain in effect only until noticed”.  The bulls had better hope that rule works this time.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
95 Hits

Tom McClellan

Chart In Focus

The Chart That Worries Me: HY Bond A-D Line

 

Chart In Focus

 

January 11, 2018

 

 

There is no divergence yet between stock indices and the NYSE’s composite A-D Line.  But there is one in the High Yield Bonds A-D Line, and that is an early warning of big trouble to come.

High yield bonds usually trade more like stocks than like T-Bonds, and so that has led a lot of analysts to keep an eye on junk bond ETFs like HYG and JNK, especially if they show a divergence relative to stock price indices.  Those ETFs tend to be dominated by high yield bonds that are related to oil exploration, and so the price of crude oil can move them around a bit.

The High Yield Bond A-D Line is more egalitarian, looking at the behavior of all of the high yield corporate bonds as tracked by FINRA.  Each one gets an equal vote, which is why looking at A-D Lines can be useful in giving a different message than cap-weighted price indicators.  And the High Yield Bonds A-D Line in particular can give us interesting indications early on that liquidity is starting to dry up.

High yield bonds are very risky, and thus they tend to be more sensitive to changes in financial market liquidity.  We saw an example of this in 2015, when this A-D Line peaked in April 2015, well ahead of the ugliness for the SP500 which arrived later that year and in early 2016.  Liquidity seemed to have been restored just after that February 2016 price bottom, and the High Yield Bonds A-D Line shot higher to demonstrate that refreshed liquidity condition. 

2007 gives us another example of this principle:

High yield bond A-D Line 2007

The SP500 had its final price top in October 2007, and we had warning of that from the NYSE A-D Line which had peaked in June 2007.  But the High Yield Bonds A-D Line peaked all the way back in May 2007, giving even earlier warning that liquidity was starting to be a problem.

Just because we have a divergence warning now does not mean that the stock market has to start downward right away.  It can take a few months before stock traders start to realize that liquidity is getting tight.  And it is also possible that a sudden gush of liquidity could lift the high yield bond market, taking away this apparent divergence.  I do not think that is going to happen, but it is possible.

This warning from the High Yield Bonds A-D Line fits well with my expectation of a significant stock market top due in March 2018.  That expectation comes from my eurodollar COT leading indication, which I discussed in a Chart In Focus article back in April 2016.  We feature that regularly in our twice monthly McClellan Market Report and our Daily Edition
 

We have to wait and see whether the NYSE A-D Line confirms the liquidity concern with its own divergence.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
100 Hits

Tom McClellan

Chart In Focus

Gold in Euros Not Confirming

 

Chart In Focus

 

January 04, 2018

 

 

Since bottoming on Dec. 12, gold has had an impressive run higher, closing up on 13 out of the past 14 trading days.  Or at least that’s true for gold prices measured in dollars. 

But gold prices measured in euros have had a much more tepid response, and have not even made a higher high yet.  It is not a bad rally in the euro price of gold, but it is not confirming the higher high in the dollar price.  History shows that this is a problematic sign for the gold rally. 

Divergences are an important element of technical analysis.  But they pop up everywhere, with one thing not matching another thing’s behavior.  The key to sorting out the important messages is to identify which index or indicator is the giving the correct message. 

In the case of gold prices, when the dollar price and the euro price disagree, it is usually the euro price that ends up being right about where both are headed.  So to see the euro price of gold failing to make a higher high in step with the dollar price, that says the dollar price of gold has ventured a bit further than it should, and that a corrective move is likely.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
108 Hits

Tom McClellan

Chart In Focus

Gold’s 8-year Cycle

 

Chart In Focus

December 29, 2017

 

We are now entering the upward phase of gold’s 8-year cycle, and that should bring some fun gains.  And this comes at a time when gold has not been getting much of investors’ attention.  If gold stays flat for a year, and Bitcoin twinkles to get all of the attention, speculators eventually drift away from gold.  That sets up a great opportunity for gold to start getting more attention, and more money thrown its way. 

As with most market cycles, gold’s 8-year cycle is measured bottom-to-bottom.  But there is more to it than just that 8-year period between major bottoms.  It typically sees a 3-year upward phase, which is where most of the big gains are seen. Then the 5-year downward phase actually has a 3-wave process of going down. 

This has been evident since shortly after gold started trading freely in 1975.  The cycle was probably lurking out in the wild, but it was just not evident with the Treasury department fixing gold prices prior to the 1970s.  The 3-up, 5-down pattern saw one anomaly in the 2000s, when prices were mostly up all the time during that cycle.  But if you look hard enough, you can see the inflection points of the 3-wave down move within that upward trend.

Now that we are in the 2010s, the pattern appears to have returned to its normal 3-year up, 5-year down phase, and reset for the next 3-year up phase.  So why has gold not started screaming higher already?

My answer is that there is another independent cycle also at work that has kept gold price down in late 2017, and that is the 13-1/2 month cycle.

Gold's 13.5 month cycle

This cycle is also a bit unusual, in that it usually contains a mid-cycle low about halfway between major cycle lows.  And as I discussed back in September, it is a bullish message to see “right translation” in the last cycle. 

That term means that the price high after the mid-cycle low is higher than the one before it.  Seeing right translation means that prices should not go down to exceed the prior major cycle low, and that they should do well in at least the first part of the next cycle, which is starting right about now.  We saw “left translation” in the 13-1/2 month cycle from 2011 to 2014, as gold prices were in a protracted downtrend during the 8-year cycle’s descending phase. 

As we head into early 2018, we have both the 8-year cycle and the 13-1/2 month cycle in their ascending phases. That means both horses are pulling in the same direction, and it should mean good things for gold prices especially in the first half of the year.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
96 Hits

Tom McClellan

Chart In Focus

Architecture Billing Index Shows Continued Growth

 

Chart In Focus

December 20, 2017

 

The folks at the American Institute of Architects, www.aia.org, publish an interesting set of data each month, collectively known as the Architecture Billing Index, or ABI.  The main ABI represents actual billings that member firms have sent out in the previous month.  They also have an “Inquiries Index”, which measures potential business as opposed to actual business.

The reason why I find examining the ABI so useful is that it correlates pretty well with GDP data, and we get the ABI data well ahead of the GDP numbers, which only come out quarterly and which take several weeks to tabulate before they are released.  

The latest release out this week showed a value of 55 for the ABI, which is the 4th highest monthly reading since the 2009 depression.  It says that there is strong demand for architectural services, which is a forerunner of actually building a new home or other type of building.  The implication is that there is no slowdown to the building boom going on now, at least as far as such a slowdown might show up in the architectural services part of that market. 

This fits well with what we already know from the rise in lumber futures prices.  Lumber gives about a 1-year leading indication for a lot of economic data series, including short term interest rates and housing data.  This next chart shows how the numbers for New Home Sales tend to follow the movements of lumber prices with a lag time of about a year.

Lumber leads new home sales

Lumber prices have been trending higher over the past year.  The last push up to a new all-time price high was admittedly helped by the hurricane damage in Texas and Florida, so we maybe should not believe in the entirety of its message.  A similar blowoff in lumber prices occurred in 2010, after an earthquake in Chile disrupted the lumber market for both North and South America, in a way that was not really replicated in the New Home Sales data.

But the portion of lumber’s uptrend which preceded the hurricanes’ damage was real market demand, and ought to flow through into the housing market data.  So far, we are not seeing anything to indicate otherwise, including from the ABI numbers.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
100 Hits

Tom McClellan

Chart In Focus

Confidence, and What Comes With It

 

Chart In Focus

December 15, 2017

 

There is a strong positive feedback mechanism involving consumer sentiment and the economy.  As conditions get better, people get more confident, which causes them to spend more, so companies hire more, which makes people more confident…. 

That all works until it doesn’t, and then the positive feedback goes the other way, making people get less confident as they see the economy slowing, making them spend less money, which causes layoffs, which makes people less confident….

The University of Michigan’ Survey of Consumers Index of Consumer Sentiment hit 100.7 in October 2017, its highest reading since January 2004.  It has backed off just a little bit since that October reading, but is still at a very high level, showing that consumers are feeling pretty confident. 

This week’s chart shows the relationship of that University of Michigan number and the U-3 unemployment rate.  There is an interesting lag in the unemployment numbers, and that is highlighted with the 10-month time offset employed in the chart above.  I want to emphasize that the consumer sentiment data plot is inverted in that chart, so that we can better see the correlation to unemployment. 

The falling unemployment rate has just been following the improvement in the University of Michigan consumer sentiment data.  And because there is a 10-month lag, we can expect to see continued low numbers for the unemployment rate for the next 10 months or so.  At the point when we see consumer sentiment start to deteriorate, then we can look ahead to when that change starts to show up in the economic numbers. 

Low and falling unemployment rates have another interesting correlation, as seen in the next chart.

10-1 yield spread and unemployment rate

Many analysts are worried about the yield curve, and already proclaimed that it is about to invert and we are going to have a recession, and the Fed is clueless, and we’re all going to die, I tell you!!!!  Actually, it still has a bit of distance yet to go before it actually inverts, and recession typically starts months after the inversion actually happens.  So there is still some time. 

And remember that the University of Michigan sentiment data give us a 10-month leading indication, and they are not showing anything troubling yet.  That could change, but for now it is a good message that things are not really about to drive off a cliff.

So what is it that can tell us about where the consumer sentiment data are heading?  I have an interesting answer, in the final chart:

Lumber prices and consumer sentiment

It turns out that consumer sentiment is well correlated with the movements of lumber futures prices.  This one at least makes some sense, as lumber demand varies with demand for new housing.  And there is no greater expression of an individual consumer’s confidence about the future of the economy than his purchase of a new home.  That greater housing demand drives up prices, and produces what you see here. 

Lumber futures prices recently jumped to an all-time price high, fueled in part by the hurricane cleanup efforts in Texas and Florida.  The hurricane damage did not create that trend, but it may have pushed it a little farther than it otherwise would have gone.  So far, lumber has not retreated much, and neither has consumer sentiment.  We should see both of those give up and head downward before we start to see changes in the unemployment rate.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
103 Hits

Tom McClellan

Chart In Focus

Conflicting Messages for Crude Oil

 

Chart In Focus

December 08, 2017

 

I like it best when all of my indicators agree, but I don’t get to enjoy that condition very often.  This week, I have conflicting signs for the future of crude oil.

The chart above shows gold’s leading indication for crude oil prices.  The offset is currently running at about 20 months; it has been as low as 11 months in past years.  The basic idea is that the movements of gold prices tend to get repeated in crude oil prices.

I call this phenomenon “liquidity waves”.  Think of a wave that passes under the end of a pier.  That same wave later reaches the beach, and so if you know how long it takes for a wave to travel, you can foretell the wave hitting the beach by seeing it at the end of the pier. 

For oil and a few other price series, gold is that guy out on the end of the pier, watching the waves come in.  Gold correctly foretold the up move we have seen in crude oil prices from the summer 2017 low.  Now the second part of the up move that we saw in gold prices 15-20 months ago is about to hit crude oil prices, if the relationship works right.  That should mean an uptrend for oil prices to around the end of March 2018. 

But conflicting with that forecast is what we see currently in the COT Report data, where the big-money “commercial” traders are holding their largest raw net short position in the history of the light sweet crude oil contract.

Crude oil COT Report

They have been continuously net short to varying degrees since 2009, and so the game consists of evaluating their current net position as a group relative to recent readings.  High net short positions like this one have been reliably associated with important price tops for crude oil futures. 

So how can we reconcile this pair of conflicting expectations?  One way is to turn back to that top chart, and note that gold’s price plot shows the thrust upward toward the top due in March/April 2018 for crude oil begins from a low equating to late January 2018.  So the uptrend in oil prices which gold is calling for really does not have to get started for another couple of months, assuming that oil matches gold’s dance-steps exactly.  That leaves some time for the commercial oil futures traders to turn out to be right about needing to have a bit of a price pullback over the next couple of months. 

The takeaway is that if you want to catch the big up move coming for oil prices, you have some time to wait first as oil prices put in a bottom to go up out of.  And when that rally comes for oil prices, don’t get too cozy in a long position, as gold’s message is one of declining oil prices into the summer of 2018.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
100 Hits

Tom McClellan

Chart In Focus

QQQ Volume Gave Us a Tell

 

Chart In Focus

December 01, 2017

 

The high volume seen in QQQ on a recent selloff was a signal that short term bearish sentiment had gotten overdone.

The tech selloff on Nov. 29, 2017 was a peculiar one, as it was not echoed elsewhere in the market.  Instead, we saw the FANG and semiconductor stocks down hard, but the DJIA was actually up on the day.  And then the next day, all of the indices were up strongly, as if whatever was worrying tech investors on Nov. 29 was magically all over.  The high volume in QQQ was a sign of a concentrated moment of panic, which evidently washed itself out all at once.

Anyone who has read Edwards and Magee’s Technical Analysis of Stock Trends knows that volume confirmation of price action can be an important analysis tool.  But volume works differently in the big ETFs like QQQ or SPY. 

High volume days in those ETFs signal excessive worry among traders.  This comes from two sources.  One is traders turning to the big ETFs instead of individual equities in times of peril because they believe that the ETFs are more liquid.  And another source of trading volume on those big days is from traders using the big ETFs as shorting vehicles, to hedge market exposure in their other holdings.  So when we see these high volume days, they are markers of acute bearish sentiment and they usually mark meaningful price bottoms. 

Low volume days can sometimes mean the opposite, showing excessive complacency that can be a marker of a price top.  But caution must be employed with interpreting low volume days, because volume can sometimes be suppressed for other reasons, such as major holidays.

The same principle also works with volume in SPY:

SPY Volume

SPY’s volume can sometimes be elevated around quarterly option and futures expiration days, as the shares of that ETF get traded as part of the exercising of those options, so some caution is merited in interpreting high volume days then.  That effect does not seem to be much of a factor for QQQ though.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
102 Hits

Tom McClellan

Chart In Focus

Running Out of Workers

 

Chart In Focus

November 24, 2017

 

By now you have already heard that the U.S. unemployment rate is down to 4.1%, as of the October 2017 data.  But that is only one way to measure what is happening in the labor market.  This week, I want to explore some other ways to depict how many people are working, versus some other measures.

The first chart above compares the headline unemployment rate (year-end values) to another plot which factors in disabled workers.  At the end of 2016, the percentage of the labor force who were unemployed was 5.0%.  That is slightly different from the “unemployment rate”, because the Labor Department factors out labor force members who have become discouraged and given up looking for a job. 

Also shown in that chart is the number of disability payment recipients as a percentage of the labor force.  In 2015 and 2016, disabled persons exceeded unemployed ones for the first time ever.  It is true that the percentage who are receiving disability payments has been declining slightly for those two years, but this is a pretty high level, historically speaking. 

If we add the unemployed and the disability recipients together, then we get the top plot in that chart, showing that together they comprise 10.2% of the labor force.  That is a pretty high percentage, meaning that only 89.8% of the working age people who could be working actually are.

It gets worse when we consider that the workers have to support not only themselves and their families, but also those disabled workers who are receiving Social Security Disability payments and those receiving unemployment insurance payments.  On top of that, the workers also have to support Social Security Retirement recipients, and the numbers of them are growing:

Social Security Beneficiaries per Labor Force

As recently as 2007, Social Security Retirement recipients were just 32% of the labor force.  Now that number is up to 38.2%, as Baby Boomers (those born 1946-64) are starting to retire.  The tail end of the Baby Boom, those born in 1964, are just 53 years old now, and so there a lot more Boomers coming who have yet to reach retirement age. 

In that chart, I also show a plot reflecting the percentage if we include retirement beneficiaries, dependents, survivors, and disability recipients.  That number is up to 44.8%!

Putting that last statistic in another way, we are getting down close to only 2 workers per recipient of any type of Social Security benefit payment:

Workers per Social Security recipient

Looking ahead, these numbers do not appear likely to get any better.  Here is the age demographic profile from the 2010 Census:

2010 Census

We are just now hitting the fat part of the Baby Boom in terms of people reaching retirement age.  Those people all think that they have “paid in”, and thus should be entitled to collect what is owed to them.  But the “Social Security Lockbox” is a myth.  There is no pile of money waiting to be paid out.  Instead, we have a pay as you go system, with the money going out as payments simply being the money that is coming in from current workers.  At some point, if this trend continues, we won’t have enough workers to support all of the beneficiaries, especially if we have another economic slowdown like 2008-09. 

For FY2017, according to data from the Treasury Department, the federal government brought in $1.162 trillion for “social insurance and retirement receipts”, including unemployment insurance, and paid out $1.001 trillion.  That’s a $161 billion surplus in that area, which is really good, but understand that revenues are up because more people are working and therefore paying into that FICA deduction on your pay stub.  If unemployment rises, those revenues will not be as good.

The alarming point, however, is that payouts are growing rapidly.  In 2013, the Social Security Administration outlays were $867 billion.  To be at $1.001 trillion 4 years later is a 3.6% annualized growth rate in payouts.  And those payouts are up 37.6% from FY2009.  So unless we can grow the size of GDP and the payments into Social Security taxes faster than the growth rate of the payouts, we are pretty soon going to be digging a hole in the form of payouts faster than it can be filled in by current workers.

So as you enjoy your Thanksgiving feast this week, be sure to thank your children and grandchildren, because they are going to be the ones picking up the tab for the retirement promises made by the Congresses that we have elected.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
104 Hits

Tom McClellan

Chart In Focus

China’s 10-year Yield Bumping 4%

 

Chart In Focus

November 15, 2017

 

Even before President Trump’s Asia trip, Chinese 10-year sovereign bond yields have been pushing higher.  And that means we should expect the same for U.S. 10-year T-Note yields.

I wrote about this relationship back in May 2017, noting that a big spread between the yields in China and the U.S. can mark an inflection point for U.S. yields.  To identify when the spread was getting to an actionable point, I used 50-2 Bollinger Bands.  That designation means that the bands are set 2 standard deviations above and below a 50-day moving average.  I have left that moving average off the chart just to help reduce visual clutter. 

This week, we are again seeing that China-U.S. yield spread poking the upper band, and at its widest value since April 2015.  This comes about because the China 10-year yield is pushing 4% and the U.S. yield is remaining basically flat.  History says that the widening spread should eventually serve to pull U.S. yields higher. 

It may not be that long-lasting of a rise in U.S. yields, because there are already signs that the China 10-year yield is outrunning its support.  China’s 10-year yield is very closely correlated to the dollar price of copper, but there is a twist in that relationship.  Sometimes we will see a divergence or other slight disagreement between copper and the China 10-year yield, and when that happens it is usually copper that ends up being right.

China 10-year yield and copper prices

Copper prices peaked back on Oct. 25 and have dropped slightly, even as the China 10-year yield has kept on rising.  This is what I mean by saying that the 10-year yield may be outrunning its support.

That does not excuse the U.S. 10-year yield from needing to play catch-up to where China’s yield has already gone.  But it does suggest that the catch-up effort may not last that long.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
106 Hits

Tom McClellan

Chart In Focus

The New FANG Plus

 

Chart In Focus

November 10, 2017

 

The InterContinental Exchange (ICE) has just rolled out a new futures contract called the NYSE FANG+™, based on the original four FANG stocks (Facebook, Amazon, Netflix, and Google) plus 6 others.  The FANG term was originally coined by CNBC’s Jim Cramer.  Some analysts are seeing this as a sign of peak excitement over the trendy tech stocks, akin to a magazine cover indication.  While they may have a point, they are likely early in making this call.

The ICE website describes the properties of the new futures contract, which is based on an equal weighting of the 10 stocks.  That introductory article includes a comparison of their new FANG+ to other indices, showing the FANG+ portfolio to be clearly superior to the SP500, Nasdaq 100, and the SP500 Info Tech Index, or at least is the case since 9/19/14.  They chose that date as a start point for comparison because that was when Alibaba (BABA) came public. 

What their introductory article fails to mention is that the performance of the FANG+ portfolio actually is not as good as the original 4-stock FANG group.  This week’s chart shows a comparison of the two portfolios since January 2014, with the FANG+ portfolio holding just the 9 stocks until BABA came public.  And just for comparison, I have included the performance of QQQ. 

The folks at ICE think that they are making a fancier product by including those 6 other trendy stocks (Tesla, Twitter, Alibaba, Baidu, Nvidia, and Apple), but their addition actually drags down the performance of the FANG group over the past 4 years.  Whether their “improvement” will turn out to be an enhancement in the future remains to be seen, and depends on how those other 6 stocks do in the future. 

What is clear in that chart above is that both of these FANG type indices are really just replicating the performance of the Nasdaq 100 Index (NDX), and its main ETF, QQQ, albeit with a performance kicker known as “beta”.   The concept of a stock’s beta is that if its benchmark index moves up or down by 1%, then a stock should move by a multiple of that percentage, and the multiple is called the beta.  So a stock with a beta of 2.0 would move 2% for every 1% move in its benchmark (in a perfect world). 

The ETF universe has come to embrace beta by inventing synthetic versions, using leverage to achieve multiples of the benchmarks’ performance.  The ProShares fund family is among the better known providers of such products, and it has a 2x leveraged version of the NDX which trades under the symbol QLD.  This next chart compares QLD to the performance of the FANG Plus stocks:

FANG Plus vs QLD

What it reveals is that the FANG Plus group of stocks really just replicates the performance of QLD very closely.  So congratulations, ICE, you just invented a futures contract that replicates an already existing leveraged ETF.

Whether or not futures traders respond by displaying demand for this new futures contract remains to be seen.  But the point for us to take away from this is that the FANG Plus product is not really anything new and different, just a repackaging of what was already available.

Tom McClellan
Editor, The McClellan Market Report

Continue reading
107 Hits

Recent Replies on Forums

Conclave 2016 Size chart