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The Daily Market Condition (DMC)

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

Click to enlarge