Dow Jones Corporate Bond Index
The MTI’s move to its Negative zone with the October 1st reading was driven by a few trend breakdowns—ones that could well reverse in short order. Recognizing the volatility of these signals (and perhaps having been “conditioned” by the one-way market of the last 18 months), we opted for just a minor asset allocation adjustment.
With the northern U.S. stuck in a deep-freeze, there could hardly be a worse time for the nation’s utilities to fail. But conventional chart work suggests that is exactly what’s happened. The Dow Jones Utility Average fell below its 40-week moving average last Friday, dropping the simple four-indicator model, shown in the chart, into third gear after it had spent most of the year with “four on the floor.”
Last spring’s “Double Death Cross” in the Dow Transports and Dow Utilities had been partially reversed even before the February low, when the Dow Utilities’ 50-day moving average crossed above its 200-day moving average (thereby issuing a “Golden Cross”). The Dow Transports remain in a bear pattern based on the 50/200-day relationship, but the gap is closing fast.
Monetary conditions are critical to the stock market outlook, but it’s never been more difficult to measure those conditions. And it’s not just QE and ZIRP. Since 2013, one-fourth of the data series in the Fed’s valuable Bank Reserves repository has been discontinued. Beware of a central bank that declares itself “data dependent” and then does away with data involving its own machinations.
The Dow Jones Corporate Bond Index has worked in eight of the last nine decades. The credit information in corporate bond prices provides valuable input for investors.