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O. Young Kwon
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O. Young Kwon, NYU Ph.D. in Economics had worked in securities industry for ten years as a Registered Investment Adviser. He taught Macroeconomics and Statistics. Prior to his academic career, he was an Economist/Bank Supervisor at the Bank of Korea (the Fed's counterpart). In 2009 he set up the... More
  • The Daily Market Condition (DMC) 0 comments
    Aug 13, 2013 5:48 AM

    The RED Indicator (Rotation/Equity Diffusion Index, a Depth Gauge) and The RED Spread Indicator (a Breadth Gauge). These two indicators can examine the market condition properly. (The RED Indicator and The RED Spread indicator were introduced in my article. Link:www.seekingalpha.com/article/817551 www.seekingalpha.com/article/1725872

    The Daily Market Condition (DMC) (March 28, 2013 Friday)

    The Data Points on March 27, 2013 Thursday):

    The RED = 50.1. It's Warm, by maintaining above 50%.

    The RED Spread = 4.0. The signal remains to be bullish

    On Fri the RED Spread Rose to 4.0 from 3.9 on Wednesday. It is a wrong direction because it moved UP on the current upswing, started from August 28, 2012.The normal inverse relationship between the RED Spread (REDS} (the Bond Premium in terms of diffusion index) and the 10-year Treasury yield is ON for 9 days out of last 12 days, as shown in the Table, meaning that the market condition was abnormal.

    The current 10-year Treasury yield at 2.672% is not only higher than 1.63% at a market trough on August 28, but it is higher than 2.24% at a market peak on April 4. A stream of spillovers from the Treasury market is still expected, but less powerful than before because of the Fed policy. Therefore, a higher level of volatility is expected amid the current sustainable upswing.

    The market signal is bullish now.

    THE Relationship Among RED REDS P/T/B ,S&P 500 & 10Y T Yield

    *

    *

    *

    *

    *

    10Y TN

    IR

    DATE

    RED

    REDS

    P/T/B

    S&P 500

    Yield

    ON/OFF

    4/4/2012

    54.3

    -3.7%

    p

    1,398.96

    2.240%

     

    8/28/2012

    51.0

    6.3%

    T

    1,409.20

    1.630%

     

    10/31/2013

    56.0

    2.4%

    *

    1,756.54

    2.542%

    ON

    11/29/2013

    55.2

    2.2%

    *

    1,805.81

    2.741%

    OFF

    12/31/2014

    54.7

    -0.9%

    *

    1,848.36

    3.026%

    ON

    1/31/2014

    50.8

    3.7%

    *

    1,782.59

    2.668%

    ON

    2/28/2014

    56.0

    6.7%

    *

    1,859.45

    2.658%

    ON

    3/7/2014

    55.3

    5.7%

    *

    1,878.04

    2.790%

    ON

    3/14/2014

    51.9

    5.1%

    *

    1,841.13

    2.645%

    ON

    3/21/2014

    53.1

    2.4%

    *

    1,860.52

    2.750%

    OFF

    3/24/2014

    52.6

    2.5%

    *

    1,857.48

    2.733%

    ON

    3/25/2014

    52.1

    2.8%

    *

    1,865.62

    2.735%

    OFF

    3/26/2014

    51.1

    3.0%

    *

    1,852.56

    2.701%

    ON

    3/27/2014

    50.1

    4.0%

    *

    1,849.04

    2.672%

    ON

           

    P = Peak T = Trough B=Breakeven

    IR = Inverse Relationship between REDS & 10Y T Yield

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