Baseline Analytics Blog

Market risk assessment tools and tactical investment opportunities driven by curated financial insight

Spotting Extremes as Clues to a Market Rally (or Sell-Off)

Baseline Analytics was founded in 2005 with a vision to assemble a variety of indicators that could identify extremes in the stock market, and to profit from the shifts in market trend following the occurence of an extreme indicator reading.

Our TrendFlex subscribers now receive timely indicator extreme alerts.  We have categorized our key indicator extremes as follows:

  1. CBOE VIX Reading and CBOE Put/Call Ratio
  2. TED Spread
  3. LQD vs. S&P 500 GAP reading

When one or more of these indicators has reached an extreme reading, chart and commentary will follow.  Here are examples of charts depicting these extreme indicators and what they suggest will happen to the market trend.

CBOE VIX and CBOE 

Look for extreme readings in VIX and Put/Call versus a moving average of each indicator. Peaks and troughs in VIX and Put/Call offer strong indications of a short-term shift in the trend of the S&P 500.

CBOE11132016

TED Spread

Shifts in the TED Spread also help to spot extremes.  As can be seen in the chart below, an oscillator indicator at the bottom of the chart spots potential buy and sell opportunities in the S&P 500.

TED11132016 

LQD:S&P 500 Ratio GAP vs. Moving Average

Here is our basic Bond vs. Stock Market Indicator.  A large GAP in the ratio (see bottom portion of chart below) provides the extreme reading and opportunity to go long or short equities.

LQD Gap

Baseline Analytics subscribers receive updates on these indicators when they have reached extreme readings. These indicators also play a role in the TrendFlex Score, which represents a weighting of 12 key market trend indicators. Subscribers include Registered Investment Advisors, individual investors, and portfolio managers.

Subscribers most often use our indicators to hedge portfolios (one popular strategy is to short S&P 500 e-Mini futures when the CBOE VIX reading is at a trough compared to its moving average).

Visit our Premium Services page for information on our services.  Baseline Analytics is currently OPEN ACCESS, however our modest $79 annual fee will be re-introduced in the coming days (A 4-week Free Trial will be available).

 

Mr. Palmerton is the Founder of Baseline Analytics, and has 30 years of experience spanning corporate finance, asset management and financial markets research. He has held positions as CFO, Director of Finance, and Financial Management and Analysis roles for Fortune 500 and multi-national firms (ADP, Honeywell, Linde Group) as well as for early-stage and emerging growth ventures).

Bob founded Baseline Analytics in 2005. With the objective to utilize technical analysis of the financial markets, coupled with macro-economic trends, Baseline Analytics strives to keep investors on the right side of the market at all times. Bob developed the TrendFlex indicator, comprised of a blend of financial indicators that assess the risk of a change in market trend. Baseline Analytics’ TrendFlex models are utilized as the basis for asset allocation strategies of The Absolute Return Market Trend Portfolio. Mr. Palmerton’s articles and blogs can be found on Seeking Alpha, Finding Technicals and Baseline Analytics.

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Guest Monday, 24 April 2017

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