Comparing Chart Conditions Across 10 Asset Categories

These weekly charts provide a common comparison basis for several key asset categories.

Each chart is from 1/1/2007 through 8/7/2009 (or as close to 1/1/2007 as possible based on the inception date of the fund). The indicators are Fibonacci retracement lines from the highest point in 2007; the 40-week (gold color) and 20-week (green color) simple moving averages; and the odds cones for prices out 9 weeks based on the price volatility over the past 26 weeks (95% probability range in red, and 67% probability range in blue).

The odds cones may be useful to some investors to help set stop levels, and to others to select option strike prices (selling options outside the odds cone and buying options inside the odds cone). Note that the length of the period used to measure historical volatility is important and the 26-weeks we used may not be the best period for your own purposes.

The 40-week/20-week SMA cross-over is a popular indicator developing trend direction changes. Note cross-over methods work best in strongly trending markets with major “hills” and “valleys” in the price chart — they work less well or poorly in “non-hilly” periods.

The chart indications about price direction and likely range are fairly self-evident. Bonds, except Treasuries, are doing OK (but Treasuries may not be so much doing badly as returning to former levels from excess out-performance). Basically, the fear element in fixed income is vastly reduced from the 2008 crash.

AGG

TLT

MUB

LQD

SPY

EFA

VWO

VNQ

DBC

GLD

Risk appetite returning has stocks are showing signs of trend reversal, most vividly with emerging markets.

Equity REITs are surging, even though numerous fundamental factors, such as refinancing problems and tenant credit quality are still a question mark.

Commodities are working on a trend reversal, but are not as far along as stocks (noting that base metals and energy are strong sub-components; while agriculturals, livestock and softs are not as strong). Gold for all its ups and downs, is about where it was before the recent unpleasantness.

It should go without saying, but we will say anyway, that charts do not address total return, fundamental valuation issues, operational and macroeconomic risk factors, or suitability issus such as personal risk tolerance and investment income needs.

Securities mentioned: AGG, TLT, MUB, LQD, SPY, EFA, VWO, VNQ, DBC, GLD.

Disclosure: We may own any or all of these securities from time-to-time in various accounts.

Comments

[Richard Shaw:]

Notice: The securities in this article ARE NOT separate asset classes. They are separate categories. They are not sufficiently differentiated as to correlation to be considered classes. The original article or our blog uses "Categories" in the title. We have requested a correction of this title to eliminate the use of the word "Classes"

Aug 10 02:07 PM