lighthouse weekly chart window - 2013-06-02

7/28/2019 Lighthouse Weekly Chart Window - 2013-06-02

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Lighth

Weekly Chart Window - June 2, 20

We

ouse Investment Management

13

kly Chart Window

June 2, 2013

Page 1


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Lighthouse Investment Management

Weekly Chart Window - June 2, 2013 Page 2

Contents

US Treasuries: Nominal Yields ...................................................................................................................... 3

US Treasuries: TIPS Yields ............................................................................................................................. 4

TIPS-derived Inflation Expectations .............................................................................................................. 5

Stock Market and TIPS-Derived Inflation Expectations ................................................................................ 6

Trend: Moving Averages ............................................................................................................................... 7

Trend: MACD ................................................................................................................................................. 8

Stocks Above 50-Day MAVG ......................................................................................................................... 9

Stocks Above 200-Day MAVG ..................................................................................................................... 10

Put-Call Ratio of Equity Options .................................................................................................................. 11

Net New Highs: NASDAQ ............................................................................................................................ 12

Net New Highs: NYSE .................................................................................................................................. 13

New Highs/Lows Ratio: NASDAQ ................................................................................................................ 14

New Highs/Lows Ratio: NYSE ...................................................................................................................... 15

Lighthouse Timing Index ............................................................................................................................. 16


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US Treasuries: Nominal Yields

Treasury bond yields continued to rise last week 30-year bond yields rose 10 bps (basis points; 1 bp = 0.01% points) 10-year yields +12 5-year yields +11


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US Treasuries: TIPS Yields

Observations:

Yields of Treasury Inflation-protected Securities (TIPS) increased even stronger 30-year TIPS +16 bps 10-year TIPS +21 bps (close to reaching 0% for the first time since December 2011) 5-year TIPS +21 bps 5- and 10-year TIPS still have negative nominal yields, forcing investors to accept a return being less

than future inflation, or a guaranteed real loss.

The same is true for Treasury yields, where nominal yields in the 5- and 10-year maturity bucket arelower than the rate of inflation, leading to a real expected loss.

Conclusion:

The Federal Reserve has successfully depressed nominal and real yields of supposedly risk-freeassets with the aim of forcing investors into riskier assets.


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TIPS-derived Inflation Expectations

Observations:

Inflation expectations are calculated by subtracting real (TIPS) yields from nominal yields Despite the recent rise in nominal yields, inflation expectations have declined further (real yields

have risen faster than nominal yields, compressing inflation expectations)

Conclusion:

Investors expect inflation to remain below the Fed's target (2% +/- 0.5) for the next 5, 10 and 30years.

The Fed is not happy about reduced inflation expectations, as it does not force consumers to spend(as would happen in case of anticipated price hikes). This further depresses the velocity of money

and counters the efforts of the Fed.

It is likely the Fed will try even harder to raise inflation expectations by continuing, or evenincreasing, "quantitative easing" measures.


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Stock Market and TIPS-Derived Inflation Expectations

Observations:

Since January 2012, the S&P 500 is basically uncorrelated to the yield of 10-year Treasury bonds (r2 =0.02), but very much correlated to the expected rate of inflation over the next 10 years (r2 = up to

0.75).

Since mid-February 2013, the strong correlation between expected inflation and the S&P 500 Indexhas reversed into a negative one. This is quite unusual.

Conclusion:

Assuming the bond market (despite price manipulation by the Fed) correctly reflects marketexpectations, the S&P 500 should be closer to 1,400 points given inflation expectations.


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Trend: Moving Averages

Observations:

All moving averages have a positive slope (pointing upwards)Conclusion:

The uptrend is intact and has strong momentum


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Trend: MACD

Observations:

The S&P 500 Index is roughly 10% above its 200-day moving average, which is quite 'extended'.Similar levels had been reached in April 2012.

The S&P is less extended from its 50- and 100-day moving average. All three derivatives of moving averages have turned upwards again recently, suggesting

momentum has even gained strength.

It should be noted that, due to 'fat tails' on the left side of the bell curve, the index will extendfurther from its average to the down- than to the upside

Conclusion:

Stock market needs to 'work off' its extended condition, especially from the 200-day movingaverage. This can be done by sideways movement. Such a 'solution' is unlikely, as the market has

had no correction since November 2012 (and went up 23% since then). A significant downward

move is therefore the likely solution.


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Stocks Above 50-Day MAVG

Observations:

68% (down from 80%) of the 500 stocks within the S&P Index are above their 50-day movingaverage

Conclusion:

More than half of the stocks are in a medium-term uptrend. This is a healthy sign. A drop below 50% would indicate trouble.


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Stocks Above 200-Day MAVG

Observations:

90% (down from 93% a week ago) of the 500 stocks within the S&P Index are above their 200-daymoving average

Conclusion:

More half of the stocks in the S&P 500 Index are in a long-term uptrend. This is a healthy sign. A drop below 50% would indicate trouble.


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Put-Call Ratio of Equity Options

Observations:

The equity put-call ratio (volume of puts traded relative to calls on individual stocks) has recentlyremained at 0.59 (note the inverse scale on the left).

The reading is about one standard deviation away from the mean.

Conclusion:

The put-call ratio shows a slight bullishness among option traders. Not enough to sound the alarm.


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Net New Highs: NASDAQ

Observations:

The number of Nasdaq-listed stocks with new 52-week highs exceeds the number of stocks withnew 52-week lows.

Conclusion:

This means the current record highs for the S&P 500 Index are supported by a large number ofindividual stocks. The rally has a good 'breadth'. No warning flag.


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Net New Highs: NYSE

Observations:

The number of NYSE-listed stocks with new 52-week highs exceeds the number of stocks with new52-week lows.

Conclusion:

This means the current record highs for the S&P 500 Index are supported by a large number ofindividual stocks. The rally has a good 'breadth'. No warning flag.


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New Highs/Lows Ratio: NASDAQ

Observations:

Nasdaq-listed stocks with new 52-week highs exceeds the number of stocks with new 52-week lowsby a ratio of 10:1, with a stalling trend.

The rally since the beginning of 2013 has been accompanied by falling peaks in the ratio, which canbe interpreted as a sign of weakening.

Conclusion:

A fall in the ratio below 1 would indicate trouble. This is currently not the case.


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New Highs/Lows Ratio: NYSE

Observations:

NYSE-listed stocks with new 52-week highs exceeds the number of stocks with new 52-week lows bya ratio of 10:1, with a falling trend.

The rally since the beginning of 2013 has been accompanied by falling peaks in the ratio, which canbe interpreted as a sign of weakening.

As a lot of fixed-income ETF's are listed on the NYSE they distort the picture (bond ETF's often rise asstocks fall).

Conclusion:

A fall in the ratio below 5 would indicate trouble. This is currently not the case.


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Lighthouse Timing Index

Observations:

The Lighthouse Timing Index remains at +10 pointsConclusion:

Our composite index suggests that no break in the upwards trend is visible yet and investors shouldbe positioned "long" in the stock market.

Note: This index is a trend-confirming indicator, and will notbe able to anticipate market tops orbottoms in advance. Due to smoothing of data, a certain time lag of about two weeks is to be expected.


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Any questions or feedback highly welcome.

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Disclaimer: It should be self-evident this is for informational and educational purposes only and shall not be

taken as investment advice. Nothing posted here shall constitute a solicitation, recommendation or

endorsement to buy or sell any security or other financial instrument. You shouldn't be surprised that

accounts managed by Lighthouse Investment Management or the author may have financial interests in any

instruments mentioned in these posts. We may buy or sell at any time, might not disclose those actions and

we might not necessarily disclose updated information should we discover a fault with our analysis. The

author has no obligation to update any information posted here. We reserve the right to make investmentdecisions inconsistent with the views expressed here. We can't make any representations or warranties as to

the accuracy, completeness or timeliness of the information posted. All liability for errors, omissions,

misinterpretation or misuse of any information posted is excluded.

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All clients have their own individual accounts held at an independent, well-known brokerage company (US)

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Management does not take custody of any client assets.

lighthouse weekly chart window - 2013-06-02

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