Corey Rosenbloom: Was the big breakout this morning in stocks a surprise or was it part of ongoing visual trends in broader money flow across the intermarket landscape?
Let’s look at the charts stretching back to late 2012 to see patterns and short-term insights into cross-market money flow:
As a proxy for “Money Flow,” we’re viewing the daily closes (line chart) of three “Risk On” Markets (Stocks, Oil, and Gold) along with two traditionally “Risk Off” Markets (10-Year Notes and the US Dollar Index).
Starting with November to present, we see a consistent trend INTO the Stock Market and OUT OF Gold.
While those are the crystal clear trends, Oil rallied with stocks through December but has since been stagnant or declining from its early 2013 peak.
Likewise, “Risk-Off” Markets Treasuries and the Dollar saw a decline into the early 2013 lows ahead of a March rally higher in the context of a short-term shift to protection/defensiveness in Oil and Gold (Commodities) but NOT in US Stocks.
In May, in conjunction with a continuation breakthrough higher (above 1,600) in the SP500, we see a mixed-money flow signal with a logical (expected) corresponding decline in Treasury prices but a sharp rally up in the US Dollar Index.
If we eliminate the US Dollar Index from the calculus, we see money flowing OUT OF Treasuries, Oil, and especially gold and continually into US equities, almost without any pause whatsoever.
With the broader picture, a continued breakout and rally in stocks is completely in line with persistent money flow trends since November 2012.
Here’s a quick look at the intraday or short-term flows (trends) (SP500 and Crude Oil):
Gold and the US Dollar Index:
For comparison, we’ll use the afternoon of April 17 as a vertical comparison of movement before and after this date (the bottom of a retracement swing in the SP500).
Note how the other three markets ‘bottomed’ the morning of the 17th as opposed to the afternoon reversal in stocks.
Even the US Dollar Index bottomed a day in advance of the stock market’s low.
All markets including gold saw a strong bounce/rally up through late April (though the Dollar weakened to a new low on May 1).
Short-term money flow continues to be bullish for Stocks, though the most recent swing has been to the downside in oil and gold.
Take a few extra moments to compare swing structure in terms of the red and green arrows across these four markets/indexes.
While these four ‘big markets’ give us a quick glimpse of broader money flow, you may also want to study related commodities, overseas equity markets, and the Treasury indexes.
It’s often helpful to view the intermarket landscape in terms of Stocks, Bonds/Treasuries, Commodities, and Currencies and visualize money flow between these markets in terms of Risk-On/Risk-Off movement for trade and position planning.
This is the type of logic/planning we use at the beginning of each week’s Intermarket Report where you can follow along by joining our membership services for daily or weekly commentary, education, and timely analysis beyond the daily blog commentaries.
This article is brought to you courtesy of Corey Rosenbloom from Afraid to Trade.
Related: S&P 500 (INDEXSP:.INX), Dow Jones Industrial Average (INDEXDJX:.DJI).