Mark Ungewitter Research

We recently studied the Hang Seng Index to see whether Coppock reversals from negative territory have worked as well in China as they have in the U.S.

Everyone knows that September is the cruelest month. But will the calendar rule the stock market in 2016? Spoiler alert… Probably not.

There are always good reasons to buy bonds after a big rally. Today we have the “gravitational pull” of negative interest rates and the frightening prospect of a European banking crisis. But the market is a discounting mechanism, which attempts to look ahead. From a technical perspective, the long bond has qualities of a cyclical top. And after a seventy-year round trip, the secular trend seems nearly exhausted. Is now really a good time to hold bonds?

We keep hearing that the market can’t rally unless earnings improve. Reviewing the track record, however, we see that price often leads earnings. (See chart below.) So let’s eliminate another bogus theory. Earnings don’t necessarily lead price. If the market is a reliable discounting mechanism, the opposite should be true.

On March 29th, Janet Yellen outlined three factors warranting a new, dovish bias: energy prices, currency dislocations, and global equity turmoil. While all of this makes perfect sense, we think the real driver of FOMC policy is corporate credit. In recent months, the price ratio of Baa-to-Aaa U.S. bonds has deteriorated to levels not seen since June 2010 and July 2012.

In my annual outlook, I highlighted several big-picture indicators that might corroborate the next bull market in gold bullion. Here’s another market-based indicator which is likely to provide the next important clue.