John Kosar's  Instablog

The following (green font) is one of the 8 charts and corresponding commentary/analysis/strategy from our February 25th Keys To This Week report (access requires subscription).

Keys To This Week, one of 8 different reports that we produce for subscribers at various intervals throughout the month, is a detailed weekly outline of key market factors and corresponding charts pertaining to the US stock market and market sectors, US interest rates, and the US Dollar, that are most likely to influence US financial market direction during the next one to several weeks.

Excerpt From: Keys To this Week
Asset Class: US Market Sectors
Topic: Asset Flows In Utilities Sector
Date: February 25th, 2013

This Week our trend model shifts to outperform in the defensive Utilities Sector.

The blue line in the lower panel of Chart 5 below plots our own Rydex Utilities Ratio, daily since 2007, which measures the percentage of daily assets invested in the Rydex Utility Sector Fund relative to the combined total assets invested in all Rydex sector funds.

A corresponding daily bar chart of the Utilities Sector SPDR ETF (XLU) is plotted in the upper panel.

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Chart 5

The green vertical highlights between both panels show that Utilities are currently hovering at/starting to rise from historic under-invested extremes according to our metric, and that previous instances of this have coincided with or led some of the most important bottoms in XLU in recent history, amid relative sector outperformance.

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The next chart below is an updated version of Chart 5 from our February 25th report. The red highlights on the chart show that, during the past 2 months, our Rydex Utilities Ratio has moved from historic under-invested extremes to opposite, over-invested extremes as investor dollars have flowed into the sector, as we anticipated.

(click to enlarge)

Our final chart below plots the daily relative performance of the Utilities Sector SPDR ETF (XLU) versus the S&P 500 ETF (SPY) since Q4 2012, with the period that our trend model has been on an overweight bias highlighted in green.

(click to enlarge)

The chart shows that the Utilities Sector has outperformed the S&P 500 by 7% since our February 25th report, which is pretty amazing considering that Utilities is typically thought of as a defensive sector and the S&P 500 has coincidentally risen to new all-time highs during that same period.

Although there are additional components to our trend model which help us to time our entries and exits, these charts are a pretty good example of how we monitor investor asset flows to identify emerging sector-related opportunities - often before they become apparent on a basic price (or relative performance) chart.

Excerpt From: US Financial Market Chart Book
Asset Class: Small Cap Stocks
Topic: Relative Performance
Date: April 2nd, 2013

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The chart shows that Small Cap stocks have led and fueled the current November advance in the US broad market as the Russell 2000 (RUT) has outperformed the S&P 500 (SPX) by 7% between November 13th and March 28th. However, the Russell has actually underperformed the S&P 500 by 2% during just the past 2 sessions, and remains vulnerable to more upcoming weakness.

This is important because if the Russell is through leading the broad market higher, another sector of the market must step up to take its place for the November broad market advance to continue. Put another way, without some new leadership - and soon - the current broad market advance will fail.

We discuss this market leadership issue in more detail including how we think it is likely to be resolved in the upcoming weeks, in our latest research.

Chart 1 measures investor sentiment according to a daily survey of the collective bullishness of retail futures traders on gold prices, which is plotted since 2008 by the blue line in the lower panel. A corresponding daily bar chart of COMEX gold is plotted in the upper panel.

(click to enlarge)

The curved green arrow on the lower right edge of the chart shows that these near to intermediate term oriented trend followers are just starting to move away from an historic least bullish (meaning most bearish) extreme on gold prices. The green vertical highlights between both panels show that previous similar extremes have coincided with what have been the most important bottoms in the price of the yellow metal in recent history.

Assuming that history repeats, these data suggest that gold prices may be at or near another similarly-important bottom now.

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