What are near-term and longer-term trends in money flow on the Cross-Market or Intermarket Landscape revealing about the current environment and factors to be watching currently?
Let’s start with the Daily Chart or Short-Term View and then broaden our perspective going back to 2009:
As I do for weekly membership reports, I’ll use the SP500 as the US stock market proxy, Gold and Crude Oil for leading commodities, the 1o-Year US Treasury Note price (for a bond market proxy), and finally the US Dollar Index (a basket of six leading currencies against the US Dollar index including the Japanese Yen and Euro).
If we broaden our perspective from the very short-term charts and shifting headline news, we see clear trends in “Money Flow” across these broad markets in the following way:
Money continues to flow INTO the US Stock Market and US Dollar Index
Money continues to flow OUT OF US Treasuries (boosting Treasury Yields) and Gold (priced in Dollars)
Given the intermediate and short-term compression or consolidation in Crude Oil (update post), there is a flat or neutral action observed.
As investors and especially traders, we are always assessing the probability for trend (money flow, in this case) continuation or else trend reversal (which will call for repositioning).
Trends have greater odds of continuing than of reversing, but keep in mind that no trend moves straight up or straight down, but they are comprised of pro-trend and counter-trend swings (or price movements).
It’s the series or structure of price highs and price lows that is important – it comprises the trend in motion.
While these trends have been clearly established since November 2012, let’s pull the perspective back to see the most recent aggregate trend reversal (in money flow) and how these markets have behaved since the 2009 inflection.
I started the chart just ahead of the major market inflection (stock, oil, and gold low; US Dollar Index high) at the beginning of 2009.
From the start of 2009, we see persistent UPTRENDS or money flow into US Treasuries, Crude Oil, Gold, and especially US Equities (stocks).
This structure persisted until roughly mid-2011 at which time the US Dollar Index bottomed (April 2011), Crude Oil peaked (also April 2011), stocks formed a short-term peak, and gold peaked later that year in September (money continued to flow into bonds without any major peak or bottom).
From this mid-2011 inflection point, trends in broader money flow shifted such that Oil and Gold (as of June 2013) have never traded back to the level achieved in 2011, the Dollar Index reversed into a full uptrend, and stocks continued their uptrend to new all-time highs.
Major headlines around this period included the end of QE2 (Quantitative Easing from the US Federal Reserve) at the end of June 2011, the loss of the US AAA+ credit rating from Standard and Poors (August 5), the Euro-zone/Greece crisis escalates (throughout most of 2011), and the US Congress fiercely deadlocked over negotiations to raise the “debt ceiling” or legal borrowing limit (July).
From mid-2011, we continue to see the aggregate money flow patterns or trends that we observe in the Daily Chart above, with the exception of the US Treasury market continuing to trend higher before peaking and reversing in May 2012.
When planning investments or trades in these markets, continue to study both the near term and longer-term trends in cross-market money flow and the trading opportunities that develop as pro-trend or counter-trend events.
As we shift into the middle of 2013, be on guard for any signs of early reversal in these trends as well.
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Corey Rosenbloom, CMT
Afraid to Trade.com
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