Broader Picture Intermarket Money Flow for May 2013

May 14, 2013: 11:38 AM CST

Was the big breakout this morning in stocks a surprise or was it part of ongoing visual trends in broader money flow across the intermarket landscape?

Let’s look at the charts stretching back to late 2012 to see patterns and short-term insights into cross-market money flow:

As a proxy for “Money Flow,” we’re viewing the daily closes (line chart) of three “Risk On” Markets (Stocks, Oil, and Gold) along with two traditionally “Risk Off” Markets (10-Year Notes and the US Dollar Index).

Starting with November to present, we see a consistent trend INTO the Stock Market and OUT OF Gold.

While those are the crystal clear trends, Oil rallied with stocks through December but has since been stagnant or declining from its early 2013 peak.

Likewise, “Risk-Off” Markets Treasuries and the Dollar saw a decline into the early 2013 lows ahead of a March rally higher in the context of a short-term shift to protection/defensiveness in Oil and Gold (Commodities) but NOT in US Stocks.

In May, in conjunction with a continuation breakthrough higher (above 1,600) in the SP500, we see a mixed-money flow signal with a logical (expected) corresponding decline in Treasury prices but a sharp rally up in the US Dollar Index.

If we eliminate the US Dollar Index from the calculus, we see money flowing OUT OF Treasuries, Oil, and especially gold and continually into US equities, almost without any pause whatsoever.

With the broader picture, a continued breakout and rally in stocks is completely in line with persistent money flow trends since November 2012.

Here’s a quick look at the intraday or short-term flows (trends) (SP500 and Crude Oil):

Gold and the US Dollar Index:

For comparison, we’ll use the afternoon of April 17 as a vertical comparison of movement before and after this date (the bottom of a retracement swing in the SP500).

Note how the other three markets ‘bottomed’ the morning of the 17th as opposed to the afternoon reversal in stocks.

Even the US Dollar Index bottomed a day in advance of the stock market’s low.

All markets including gold saw a strong bounce/rally up through late April (though the Dollar weakened to a new low on May 1).

Short-term money flow continues to be bullish for Stocks, though the most recent swing has been to the downside in oil and gold.

Take a few extra moments to compare swing structure in terms of the red and green arrows across these four markets/indexes.

While these four ‘big markets’ give us a quick glimpse of broader money flow, you may also want to study related commodities, overseas equity markets, and the Treasury indexes.

It’s often helpful to view the intermarket landscape in terms of Stocks, Bonds/Treasuries, Commodities, and Currencies and visualize money flow between these markets in terms of Risk-On/Risk-Off movement for trade and position planning.

This is the type of logic/planning we use at the beginning of each week’s Intermarket Report where you can follow along by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available

1 Comment

One Response to “Broader Picture Intermarket Money Flow for May 2013”

  1. theyenguy Says:

    Beginning with stock market confidence in Mario Draghis’ OMT in October, 2013, currency carry trade investment from a rising Euro Yen, EUR/JPY, Currency Carry Trade, seen in the chart of FXE:FXY, as well as a rush of toxic credit, seen in the chart of Junk Bonds, JNK, coupled with a sale of Gold, GLD, to close at $1,306, started a risk-on rally, flow of funds in the the S&P 500, SPY, as well as the Russell 2000, IWM.

    With the commencement of competitive currency devaluation on Friday May 10, 2013, specififically with the world’s individual currencies excluding the US dollar, trading lower, and with not only Aggregate Credit, AGG, trading lower, but also the highly indebted Electric Utilities, XLU, as well, the world pivoted from Liberalism’s age of investment choice, to Authoritarianism’s age of diktat; the epoch of inflationism ceased, and the epoch of destructionism commenced.

    In compliment of the currency traders, who have started a sell of the world currencies, the bond vigilantes have gained a nascient control of interest rates, as is seen in their call of the Interest Rate on the US Ten Year Note, ^TNX, higher to 1.95%, and a steepening of the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, seen in the Steepner ETF, STPP, steepening.

    And during the week ending Friday May 17, 2013, the coordinated intensification by the central banks throughout the world for the reduction of interest rates, established Global ZIRP, with Bento te writing 511 Interest cuts and sluggish economic growth, causing a blow off stock market top, seen in the chart of World Stocks, VT, rising 1.2%, and seen in the chart of the S&P 500, $SPX, SPY, closing at 1,667, up 2.1% for the week; it has risen 1,000 points from the March 2009, 667 low, in 50 months.

    The world central banks’ monetary policies of Global ZIRP, have finally started to turn “money good” investments, bad. A case in point is Australia’s Westpac Banking, WBK; in contrast, currency carry trade endowed, Lloyds Bank, LYG, US Too Big To Fail Bank Citigroup, C, and Regional Bank, RF, rose strongly in a Global ZIRP grand finale finish of investment mania. Failing of Global ZIRP, stimulated investors to derisk out of Nation Investment in Australia, EWA; in contrast Malaysia, EWM, rose strongly on Global ZIRP cool aid. And souring Global ZIRP, in particular the debt dynamics of Australia Dividends, AUSE, turned this investment lower, while investors pursued Pharmaceuticals, PJP, Small Cap Value, RZV, and Premium Reits, KBWY, Another example of investors derisking on excessive credit policies, is the trade lower in Japanese Treasury Bonds, as seen in their inverse, JGBS, trading higher, in contrast Japan, EWJ, rose strongly.

    It is sovereignty that provides order and begets seigniroage, that is moneyness. The rule of Liberalism’s democratic nation states provided a moral hazard, toxic credit, and global carry trade financed seigniorage, via the genius of the Milton Friedman Free To Choose fiat money system.

    Financial institutions, IXG, European financials, EUFN, Far East Financials, FEFN, Emerging Market Financials, EMFN, Too Big to Fail Baks, RWW, Chinese Financials CHIX, Regional Banks, KRE, will no longer be transmitiing seigniorage; rather they will be integrated into the government, and be known as Gov Banks, or Government Banks, and be part of regional diktat unions, beginning first in the Eurozone.

    Seigniroage, that is moneyness, will no longer come from decmocratic nation states, which supported economic growth, global trade and corporate profitability; but rather from the word, will and way of sovereign regional leaders such as Olli Rehn, Jeroen Dijsselbloem, and Michel Barnierm, as well as sovereign regional sovereign bodies, such as statist public private partnerships, the ECB, as they invoke mandates for regional security, stability, and sustainability.

    As revealed in the last book of the Bible, The Revelation of Jesus Christ, the sovereign Lord God, is

    pivoting the world from Liberalism which featured the Banker’s Regime, Milton Friedman Free To Choose, fiat money system to Authoritarianism which features the Beasts’ Regime, regional governance, totalitarian collectivism, debt servitude, and austerity, diktat money system.