China, Spain Help Risk Near Key Support

By: Chris Ciovacco | Thu, Sep 27, 2012
Print Email

The hope for more money printing allowed a key market ratio to hold at a bullish support zone Thursday. Using a familiar script, global markets shot higher primarily based on (A) news related to government debt, and (B) speculation that more stimulus is on the way. From The Sydney Morning Herald:

Stocks advanced and the euro recovered from two-week lows on Thursday after the Spanish government said it would cut spending sharply and speculation grew that China will act to support economic growth. Spain's Deputy Prime Minister Soraya Saenz de Santamaria announced a timetable for economic reforms and a tough 2013 budget focused on spending cuts rather than tax increases as the country continues to negotiate a possible European aid package to ease high borrowing costs.

If you follow our work, you know we have been concerned about weakness on numerous intermarket charts. One of the risk-on vs. risk-off ratios we track is the performance of the S&P 500 relative to intermediate-term Treasury bonds (IEF). When the ratio is rising, stocks are performing well relative to bonds (see chart below). This week, the ratio is trying to make a stand (see point A). The intersection of numerous trendlines could act as support for stocks relative to bonds. The last four times the ratio held at support, it marked a good entry point for stocks (see 1-4 below). The S&P 500 is shown as a point of reference.

$SPX:IEF (S&P 500/iShs T-Bnd 7-10y) INDX/NYSE

The pattern has been to buy risk at support (where the ratio hits the blue trendlines). At some point the pattern will be broken, but for now it remains intact. We did redeploy some of our cash today into emerging markets (EEM) based partly on the chart above. The chart above is a weekly chart, which means where it finishes the week is much more important than Thursday's close. Friday is a big day for risk.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

Copyright © 2006-2014 Chris Ciovacco

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/