Major Trend Index
Although we are not in the “melt-up” camp, we’d concede that stock market leadership is exactly what we’d expect if we were in that camp: Domestic over Foreign, Large over Small, and Growth over Value. Price action continues to remind us of the powerful rebound off the fall 1998 lows. Current earnings and liquidity trends, however, are not nearly as supportive as they were during that historic market move.
The Boom/Bust Indicator, a weekly ratio of industrial-commodity prices to initial unemployment claims, has had a near-vertical rebound to old highs in the last several weeks. This index usually peaks out many months in advance of a business cycle peak (although not in 2007, when it provided no warning of the pain to come).
Within the Economic work, the big development was a bullish flip in our Dow Bond Oscillator (DBO), which crossed above the zero threshold by the thinnest of margins. Subjectively, however, we are troubled that government yields across the maturity spectrum have been holding near recent lows in the face of equities’ powerful rally.