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Intermarket Updates for the IMRA Inter-Market Relationships Analysis http://www.krk-imra.com email: Kevin Klombies krk@krk-imra.com
Monday, August 29, 2005
Just a quick observation:
One of the major ratios that we have been following involves the S&P 500 Index divided by the Dow Jones AIG Commodity Index. The equity/commodity ratio has bottomed along a support line consistently over the past 20- 25 years.
At present the support line runs through around 7.15 to 7.2 times. In other words, for any given level for the commodity index and assuming that the ongoing trend remains intact the S&P 500 Index has support around 7.2 times the DJ AIG Commodity Index.
I mention this because at present the commodity index is 169.55 so support for the SPX runs between 1212 and 1220 which is certainly higher than the current level of 1205. If you are wondering why the equity markets are holding so well today this is likely as good an answer as any.
KK
One of the major ratios that we have been following involves the S&P 500 Index divided by the Dow Jones AIG Commodity Index. The equity/commodity ratio has bottomed along a support line consistently over the past 20- 25 years.
At present the support line runs through around 7.15 to 7.2 times. In other words, for any given level for the commodity index and assuming that the ongoing trend remains intact the S&P 500 Index has support around 7.2 times the DJ AIG Commodity Index.
I mention this because at present the commodity index is 169.55 so support for the SPX runs between 1212 and 1220 which is certainly higher than the current level of 1205. If you are wondering why the equity markets are holding so well today this is likely as good an answer as any.
KK
Monday, August 01, 2005
Monday comment:
This is one tough market to figure out.
On the one hand...
A host of stocks that I have been following look much better including many of the autos, some of the airlines, and even a few financials. Stocks like Mitsubishi Financial (MTF) are very close to breaking higher and this was supposed to occur as the yield curve stopped flattening and began to steepen.
The yield curve steepened on Friday and again today so this makes sense.
On the other hand...
The yield curve was supposed to start to steepen when copper and crude oil prices turned lower and this was supposed to occur with a better U.S. dollar.
Today crude oil and copper are stronger, the SPX/crude oil ratio is back to 20:1, the oils (XOI) are stronger, and from this perspective it looks like the time to start pitching long equity positions.
At the same time stocks like Alaska Air (ALK) are pushing up through resistance in apparent trend change/break outs. As I mentioned last week the markets will initiate trend changes when they make the least amount of sense and the start of rising trends for the autos and airline now makes almost no sense.
Cdn dollar stronger but still below .835.
Grains a bit better but still well below the July highs.
KK
This is one tough market to figure out.
On the one hand...
A host of stocks that I have been following look much better including many of the autos, some of the airlines, and even a few financials. Stocks like Mitsubishi Financial (MTF) are very close to breaking higher and this was supposed to occur as the yield curve stopped flattening and began to steepen.
The yield curve steepened on Friday and again today so this makes sense.
On the other hand...
The yield curve was supposed to start to steepen when copper and crude oil prices turned lower and this was supposed to occur with a better U.S. dollar.
Today crude oil and copper are stronger, the SPX/crude oil ratio is back to 20:1, the oils (XOI) are stronger, and from this perspective it looks like the time to start pitching long equity positions.
At the same time stocks like Alaska Air (ALK) are pushing up through resistance in apparent trend change/break outs. As I mentioned last week the markets will initiate trend changes when they make the least amount of sense and the start of rising trends for the autos and airline now makes almost no sense.
Cdn dollar stronger but still below .835.
Grains a bit better but still well below the July highs.
KK
Tuesday, July 26, 2005
Tuesday comment:
There are so many 'if this, then that' issues on the go at present the only way I can make sense out of things is to have at least one 'hard' view. Currently I have a number but the anchor is likely the negative view on the Canadian dollar.
The basic idea is that as long as the Canadian dollar remains nicely below .835 then any rally in copper or crude oil prices is basically a rally away from a falling trend. If crude oil manages, as it did last March, to push back to the recent highs or even move somewhat higher the intermarket argument is that it really doesn't matter since the trend for crude oil is still 'down'. If the trend is 'down' and prices move higher the risk of a sharp decline back to the trend increases.
I am still equity markets positive although there are a few good reasons to remain cautious. The bond market still looks heavy with long-term yields moving higher through August but in due course interest rates will likely have to move lower once again.
I still very much like corn. This is an amazing intermarket set up.
KK
There are so many 'if this, then that' issues on the go at present the only way I can make sense out of things is to have at least one 'hard' view. Currently I have a number but the anchor is likely the negative view on the Canadian dollar.
The basic idea is that as long as the Canadian dollar remains nicely below .835 then any rally in copper or crude oil prices is basically a rally away from a falling trend. If crude oil manages, as it did last March, to push back to the recent highs or even move somewhat higher the intermarket argument is that it really doesn't matter since the trend for crude oil is still 'down'. If the trend is 'down' and prices move higher the risk of a sharp decline back to the trend increases.
I am still equity markets positive although there are a few good reasons to remain cautious. The bond market still looks heavy with long-term yields moving higher through August but in due course interest rates will likely have to move lower once again.
I still very much like corn. This is an amazing intermarket set up.
KK
Thursday, July 14, 2005
Thursday comment:
Not often that everything comes together on the same day but this is certainly a nice example.
Crude oil- Finally over the top. Could be sub-50 within a few days (briefly).
Corn- nice break out. As mentioned many times I am not only positive on corn but also patiently positive. 3.90 is definitely possible later this year.
Equity markets- SPX through 1230 is a break out that should mean that energy prices have finally stopped pushing. Still like the airlines and autos.
Bonds- lots of conflicting signals but I think bonds look lower with 10-year yields heading north of 5%.
KK
Not often that everything comes together on the same day but this is certainly a nice example.
Crude oil- Finally over the top. Could be sub-50 within a few days (briefly).
Corn- nice break out. As mentioned many times I am not only positive on corn but also patiently positive. 3.90 is definitely possible later this year.
Equity markets- SPX through 1230 is a break out that should mean that energy prices have finally stopped pushing. Still like the airlines and autos.
Bonds- lots of conflicting signals but I think bonds look lower with 10-year yields heading north of 5%.
KK
Tuesday, June 28, 2005
Tuesday Comment:
The conviction is that the end of this quarter should mark the lows for long-term interest rates for years to come. 30-year yields should rise from roughly 4.25% back to around 5.5% by next spring.
The conviction is that commodity prices have peaked. That the next time oil prices decline they will not rally back to new highs. That commodity prices will decline through 2006.
The conviction is that this is THE best time to start selling income trusts.
The conviction is that the U.S. dollar is going to continue to push higher.
KK
The conviction is that the end of this quarter should mark the lows for long-term interest rates for years to come. 30-year yields should rise from roughly 4.25% back to around 5.5% by next spring.
The conviction is that commodity prices have peaked. That the next time oil prices decline they will not rally back to new highs. That commodity prices will decline through 2006.
The conviction is that this is THE best time to start selling income trusts.
The conviction is that the U.S. dollar is going to continue to push higher.
KK
Thursday, June 16, 2005
Thursday comments:
The markets are replaying 2004 in many respects. The focus of tomorrow's IMRA issue is going to be the way certain sectors are moving in exactly the same fashion as June of last year. We had a peak in the Aussie dollar ahead of the top in the mines and metals and now with stocks like PD surging higher the markets' message is that the euro and shipping rates are bottoming.
Frankly... we find ourselves arguing with the market and that makes us rather uncomfortable. The market is saying that dollar is going lower, commodity prices will rise through the balance of this year, and the commodity currencies are getting set to power to new highs.
The big difference between NOW and last year would have to be the bond market. Bond prices declined into the end of June in 2004 and this year it looks very much like bonds are going to hold a rising trend into the end of the quarter.
KK
The markets are replaying 2004 in many respects. The focus of tomorrow's IMRA issue is going to be the way certain sectors are moving in exactly the same fashion as June of last year. We had a peak in the Aussie dollar ahead of the top in the mines and metals and now with stocks like PD surging higher the markets' message is that the euro and shipping rates are bottoming.
Frankly... we find ourselves arguing with the market and that makes us rather uncomfortable. The market is saying that dollar is going lower, commodity prices will rise through the balance of this year, and the commodity currencies are getting set to power to new highs.
The big difference between NOW and last year would have to be the bond market. Bond prices declined into the end of June in 2004 and this year it looks very much like bonds are going to hold a rising trend into the end of the quarter.
KK
Friday, June 03, 2005
Friday thoughts:
1) There is a tricky little sequence that still appears to be on the go. Bonds are rallying on the expectation now that the Fed is going to stop raising rates after the June Fed meeting. Fine. The yield curve is flattening as short-term rates move higher and long-term rates move lower. Fine. The end of yield curve flattening typically occurs after crude oil prices have broken lower. Fine. Gasoline prices tend to rise with short-term yields. Once again... fine.
The intermarket 'circle' is that if short-term yields are at or close to a peak and the yield spread is close to or at its low then some time this month energy prices should move lower.
Put another way... I use the combination of copper and crude oil prices as a way of showing the trend for short-term yields. Short-term yields do not fall when these two are rising.
The conundrum is that copper and crude oil prices seem ready to rally on ANY sign of dollar weakness. I argued today that the euro has rather key support at 1.22. It held yesterday and gold prices were up 7.
One very possible outcome would be that the euro simply does not hold at 1.22 and as it moves below that level the commodity indices actually weaken.
KK
1) There is a tricky little sequence that still appears to be on the go. Bonds are rallying on the expectation now that the Fed is going to stop raising rates after the June Fed meeting. Fine. The yield curve is flattening as short-term rates move higher and long-term rates move lower. Fine. The end of yield curve flattening typically occurs after crude oil prices have broken lower. Fine. Gasoline prices tend to rise with short-term yields. Once again... fine.
The intermarket 'circle' is that if short-term yields are at or close to a peak and the yield spread is close to or at its low then some time this month energy prices should move lower.
Put another way... I use the combination of copper and crude oil prices as a way of showing the trend for short-term yields. Short-term yields do not fall when these two are rising.
The conundrum is that copper and crude oil prices seem ready to rally on ANY sign of dollar weakness. I argued today that the euro has rather key support at 1.22. It held yesterday and gold prices were up 7.
One very possible outcome would be that the euro simply does not hold at 1.22 and as it moves below that level the commodity indices actually weaken.
KK
