Quick Cross-Market Chart Flashes Caution for Stocks

May 28, 2014: 2:12 PM CST

Let’s take a quick look at the Cross-Market or Intraday Intermarket Landscape which sends a caution sign for the stock market.

Though the stock market could easily ignore the signal, but let’s quickly view the message:

In this chart, we’re seeing the S&P 500 ETF (SPY) which is colored Green along with Gold’s ETF (GLD – yellow/gold) and a leading crude oil ETF (USO – black).

What’s going on?

Generally (although not always), commodities and stocks tend to trend (move) together as money flows into “Risk-On” or offensive assets. Gold has become less correlated to stocks than other commodities.

We saw steady movement as stocks and oil rose together over the last week, but look closely at May 23.

Gold (GLD) actually peaked a day earlier on May 22nd ahead of its breakdown and collapse while Oil’s ETF (USO) peaked the next day on May 23 ahead of its sharp decline today.

What happened to the SPY/Stock Market?  It continued to rise into new all-time highs today.

The warning sign comes from commodities forming a short-term peak and sharp reversal while stocks continued trading higher.

Not only did “Risk-On” markets fall, “Risk-Off” or Defensive Markets rose with stocks:

SPX SPY IEF TLT Bonds UUP Dollar

This time we’re seeing the S&P 500 ETF (SPY – black in this chart) along with the US Dollar Index ETF (UUP – lime green) and the 20+ Year US Treasury ETF (TLT – red).

We saw treasuries (TLT) decline throughout the week then reverse on May 22nd.

Note the steep rise in the red line TLT Treasury ETF as it makes new chart (intraday) highs along with stocks at all-time highs.

The US Dollar Index has stealthily been creeping higher as generally the Dollar Index trades inverse (the opposite direction) to both commodities and the US Stock Market.

While money may simply continue flowing into stocks,  the message from the short-term intermarket suggests caution is favored to blind bullishness.

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Corey Rosenbloom, CMT
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2 Comments

2 Responses to “Quick Cross-Market Chart Flashes Caution for Stocks”

  1. Jim Says:

    gold vs spx as risk on? where's jjc or slx in your analysis? so you took 5 days intraday and ..?

    how about throwing in some data to back up your hypothesis?

    here's some correlation data

    http://stockcharts.com/h-sc/ui

    uso and jjc vs spx has clearly been broken since 2013, and gld? clearly an inverse relation in 2013. even if this relation is changing in 2014, it is not yet a leading indicator to send a “crystal clear signal for the stock market”.

  2. Binny Says:

    It is really tough to deal with cross markets, we have to be careful not opening any unnecessary order or it can really lead towards big disasters, I feel comfortable with trading on any kind of market since using OctaFX broker allows me low spread of just 0.2 pips, so I can easily recover that even in difficult market conditions, but of course been careful is very important so I also follow their analysis they provide us with for free.