Lighthouse Weekly Chart Window - 2013-08-26

7/27/2019 Lighthouse Weekly Chart Window - 2013-08-26

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Lighth

Weekly Chart Window - August 26,

We

ouse Investment Management

, 2013

kly Chart Window

August 26, 2013

Page 1


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Lighthouse Investment Management

Weekly Chart Window - August 26, 2013 Page 2

Contents

Nominal Bond Yields ..................................................................................................................................... 3

Real Bond Yields ............................................................................................................................................ 4

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

Corporate Bond Spreads ............................................................................................................................... 6

Currencies: Emerging Markets ...................................................................................................................... 7

Stock Market: Moving Averages ................................................................................................................... 8

Stock Market: MACD ..................................................................................................................................... 9

Stock Market: Stocks Above 50-Day MAVG ................................................................................................ 10

Stock Market: Stocks Above 200-Day MAVG .............................................................................................. 11

Stock Market: Net New Highs ..................................................................................................................... 12

Stock Market: New Highs/Lows Ratio ......................................................................................................... 13

Risk-on / Risk-Off ........................................................................................................................................ 14

Lighthouse Timing Index ............................................................................................................................. 15

Spotlight: Gold mining stocks ..................................................................................................................... 16


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Nominal Bond Yields

Observations:

Yields kept surging, reaching the highest level in two years 10-year Treasury bond yields have more than doubled since the low (1.4%, July 2012) The increase in yields is not driven by increased inflation expectations (on the contrary -

inflation expectations are receding)

Instead, an increase in real yields is the driving force


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Real Bond Yields

Observations:

Real (inflation-adjusted) bond yields continue to increase As the Fed tries to reduce monthly purchases of Treasury bonds, real yields seem to normalize

from artificially depressed levels


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TIPS-derived Inflation Expectations

Observations:

Inflation expectations are calculated by subtracting real (TIPS) yields from nominal yields Inflation expectations have resumed their decline The Fed prefers elevated inflation expectations in order to motivate consumers to spend. A slowing

velocity of money counters the Fed's efforts.

Recent talk from Bernanke about possible 'tapering' of QE later in 2013 led to doubts regarding theFed's policy of N-GDP targeting, only adopted in late 2012.

CONCLUSION: Nominal and real interest rates have risen above levels seen before theannouncement of the most radical program of 'quantitative easing'. The Fed has failed to achieve its

goal (depress yields) and, despite record bond purchases, has lost control of the yield curve. It is

highly questionable if the Fed will be able to follow through on its plan to reduce bond purchases. Its

credibility is waning.


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Currencies: Emerging Markets

Observations:

Emerging Market currencies continue to weaken against the US Dollar, especially the Indian Rupee,Brazil Real, South African Rand and the Indonesian Rupiah (not shown above)

The main driver has been escalating current account deficits Central banks have to intervene to support their currencies, losing vital currency reserves in the

process

Weak currencies trigger capital flight by international investors lured by higher yields Rising bond yields risk pushing already weakening economies into recession

CONCLUSION: Deteriorating conditions in emerging markets could spill over into developed markets.

Global companies might feel negative impacts in their earnings.


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Stock Market: Moving Averages

Observations:

All moving averages have a positive slope (pointing upwards) The 10-day mavg is about to breach the 50-day moving average - a first warning signConclusion:

The uptrend is still intact, but looks vulnerable


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Stock Market: MACD

Observations:

The S&P 500 Index is around 9% above its 200-day moving average, which is quite 'extended' The S&P is less extended from its 100-day moving average (which is to be expected, as shorter

averages tend to follow the index more quickly)

All three derivatives of moving averages are falling, suggesting the stock market is losingmomentum.

Conclusion:

A correction is under way and needs to continue to let off further steam.


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Stock Market: Stocks Above 50-Day MAVG

Observations:

59% (previously 73%) of the 500 stocks within the S&P Index are above their 50-day moving average More than half of the S&P 500 members are in a medium-term uptrend. This is a good sign. Any reading below 50% indicates trouble for the bulls. The trend is declining, and the indicator will soon intercept the 50% marker

Conclusion: The number of stocks entering a medium-term down trend is rapidly rising. This is another

warning sign.


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Stock Market: Net New Highs

Observations:

The number of NYSE-listed stocks with new 52-week highs is lower than the number of stocks withnew 52-week lows. This is a negative sign.

Conclusion: Most stocks are participating in the recent correction, confirming the rally has ended (at

least in the medium-term).


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Risk-on / Risk-Off

The general market (SPY) is outperforming high dividend shares (SDY), (red line, bullish) Stocks are outperforming bonds (blue line, bullish) The high-yield bond ETF (HGY) is outperforming investment-grade ETF (LQD); green line (bullish)

Equal-weight ETF (RSP) is outperforming market cap-weighted ETF (SPY); green area (bullish)CONCLUSION: 4 out of 4 indicators suggest the stock market is in an uptrend


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Lighthouse Timing Index

Observations:

The Lighthouse Timing Index remained at zero (previously: 0 points)Conclusion:

Our composite index suggests that while the uptrend has ended it is too early to confirm a bearmarket has begun.

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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Spotlight: Gold mining stocks

Gold mining stocks did not make "lower lows" since end of June - a good sign The price of gold is outperforming the stock market index (red line) Gold mining stocks are outperforming the price of gold (purple line) Junior gold miners are outperforming senior miners (green line)CONCLUSION: After taking a severe beating, gold mining stocks might have found a bottom


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Any questions or feedback 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 investment

decisions 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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Lighthouse Weekly Chart Window - 2013-08-26