Posts filed under “Contrary Indicators”

Diverging ETFs: What Are GLD & SPY Telling Us ?

GLD vs. SPY Relative Price

click for larger graphic

Source: Solari Report, Yahoo Finance


Here is an interesting observation: The value of the SPDR Gold Trust (GLD) is now worth more than the SPDR S&P 500 (SPY) representing the full index. (This refers to the ETFs and not the underlying value of the SPX and Gold).

Note that ETFs are not fully representative of the underlying indices valuation, and that can lead to some odd permutations. For example, Apple (AAPL), a member of the S&P500 Index (SPY) and Nasdaq100 (QQQ), is worth more than both ETFs combined.

Back to Gold: State Street Global Advisors, which administers the ETFs, puts the value of Gold ETF at $76,673.81M versus the S&P 500 ETF at $74,381.35 M.


What might this mean?

Lets look at the two charts on this page: The one at top shows the relative moves of the two indices. They have diverged, heading in separate directions, and are now extremely far apart. That valuation difference is reflective of sentiment reaching an extreme. This is somewhat reminiscent of back in October 2002, when the Pimco Total Return Bond Fund surpassed the Vanguard S&P500 fund to become the largest mutual fund (See these Contrary Indicators 2000 – 2003 Bear), and could have some contrary value.

The second chart, at bottom, shows a simple ratio of SPY to GLD. It has now dropped below the March 2009 levels. That might also be constructive for a reversion (ie, bounce in SPY and drop in GLD)

It could be a contrary indicator, as the two indices have moved to extremes. Equity markets are now extremely oversold, while Gold has moved parabolically. Some mean reversion would appropriate around now.

One caveat: The MACD reading of this ratio was far more deeply into the red back at the 2009 market lows. That suggests this reading can get further oversold.

Perhaps this is supportive of (warning: selective perception ahead) an oversold bounce that ultimately rolls over, taking this ratio to greater extremes.


SPY versus GLD Ratio

click for larger graphic

Source: StockCharts

Category: Contrary Indicators, ETFs, Gold & Precious Metals, Psychology, Trading, Valuation

The Punditry Chronicles

Forecasting is a rough gig that often confounds even those who do it for a living and generally do it well. Situational awareness (see e.g., this and this), on the other hand, is all about knowing “what you need to know not to be surprised,” and having “the ability to maintain a constant, clear mental…Read More

Category: Analysts, Contrary Indicators, Really, really bad calls, Research

Barron’s: Social Networking a Bubble. What Does This Mean?

Bubble Trouble: This week’s Barron’s cover story by Mike Santoli proclaims “Yes, its a bubble.” Before we delve into the article, recognize that 1) This is not your mainstream publication, so it has no validity as a contrary indicator; 2) the definition of social is rather stretched, including Pandora and Zillow, which are not really…Read More

Category: Contrary Indicators, Psychology, Valuation

Is Crude Oil About to Collapse?

The cover story in this week’s Barron’s is a canary yellow screamer: Ready for $150 Oil. (click cover at right for larger graphic) Normally, the magazine cover indicator does not work with business press; it only applies to mass market magazines (think Time or Newsweek). In the present case, Gene Epstein is forecasting a new…Read More

Category: Contrary Indicators, Economy, Energy, Financial Press, Really, really bad calls

Window Dressing Proceeds Apace

With 6 of the past 7 weeks in the red, the markets have managed to string together a series of winning days. Daily gains both this week and last have ranged between 0.50% and 1.25%. Indeed, the Dow’s gains on Monday and Tuesday represent the first consecutive triple digit gain for the Industrials  since December…Read More

Category: Contrary Indicators, Markets, Technical Analysis, Trading

VIX: Where is the Panic In the Markets?

Click on chart for larger image > Despite the concern about the economy, Greece, China, etc., and general sentiment readings, the VIX remians surprisingly low: BusinessWeek: No Panic in Options After VIX Takes Six Weeks to Exceed Average It took six weeks of equity losses, a series of lower-than-estimated economic reports and political turmoil in…Read More

Category: Contrary Indicators, Markets, Psychology, Technical Analysis

Checklist: How to Spot a Bubble in Real Time

Are the Linked In/Groupon IPOs proof we have a new bubble in Tech? Are US Treasuries a bubble? Commodities? There have been numerous attempts by many Fed economists to argue that bubbles cannot be seen as they happen, and they we can only spot them after the fact. I believe they are incorrect. We can…Read More

Category: Contrary Indicators, Psychology, Trading

Uh-Oh: Gold on the Cover of NYT Magazine ?

I am not quite sure what to make of this NYT magazine cover. On the one hand, it is gold on the cover of a mainstream magazine. But its less convincing as a magazine cover contrary indicator. Compare it to the Housing peak covers in Fortune (May 2005) or Time (June 2005). The focus here…Read More

Category: Contrary Indicators, Gold & Precious Metals

Short Memories (Fade the Inflation Hysteria, II)

Flashback to June 2008 (only three short years ago): Headline CPI was running very close to 5.0 percent.  The Fed funds rate was at 2.0 percent.  Brent crude was $132/barrel.  The Fed’s June 2008 minutes mentioned the word “inflation” 110 times (“deflation” and “disinflation” combined:  zero), and also contained this caveat (emphasis mine): With increased…Read More

Category: Contrary Indicators, Cycles, Data Analysis, Economy, Federal Reserve, Inflation

World Gold Bug Article on WSJ Front Page

Front page WSJ story today — World Is Bitten by the Gold Bug: “Gold continued its upward march in a time of global financial tumult, closing above $1,500 an ounce Thursday for the first time as investors seek safe haven in the metal. In a remarkable performance for any sort of asset, gold has notched…Read More

Category: Contrary Indicators, Gold & Precious Metals