Welcome to Asbury Research's
Logic-Over-Emotion Investing Blog

Our Initial Upside Target Has Been
Met In The Materials Sector (XLB)

John Kosar To Speak at Feb 21st Market Technician’s Association Meeting: Minneapolis

John Kosar, our Director of Research, will be the guest speaker at the Tuesday, February 21st meeting of the Minnesota Chapter of the Market Technician’s Association (MTA).  The meeting will be held at the US Bank Building, 800 Nicollet Mall, at the Piper Jaffray offices.  9th floor in downtown Minneapolis at 4:00 pm CST (5:00 pm ET, 2:00 pm PT).  This presentation will be given remotely, but live.

John will display and discuss approximately 20-30 charts covering the US stock market, market sectors and US interest rates that reflect Asbury Research’s macro view on the US financial landscape 1-3 months forward. The presentation should last between 30 and 45 minutes and will be followed by a brief Q and A session.

Further details and sign-up info are available by either visiting the Market Technicians Association website, or by calling the MTA’s New York City office at 646-652-3300.

Our 2011 US Stock Market Calls

We have recently updated our 2011 market calls for the US stock market and stock market sectors.

You can view them in detail, plus our 2010 market calls, by clicking here.

Bottom line, in 2011 our market calls outperformed the S&P 500 by +45 points or +8.4%.  Previously, in 2010, our market calls outperformed the S&P 500 by +149 points or +13.7%

We have also included an explanation of our methodology.  That is, how we derive our market bias.  Here is an excerpt from that explanation:

Our methodology is admittedly conservative in its approach as it is not designed to pick market tops and bottoms because of the additional risk involved in trying to do so.  However, it is designed to ensure that we participate in every multi-month trend that the market gives us every calendar year.  We believe that this strategy, of striving to capture the middle 70% of every intermediate term price trend, is the most reliable and risk-averse way to consistently “beat the market”.

Click the following link to view our 2011 and 2011 market calls, corresponding performance-related data, and the full explanation of our methodology.

Where Are US Stocks Headed? Watch Mexico.

The following is an excerpt from our February 6th report entitled, Mexican Stocks Meet Our Initial Upside Target.

Asbury Research subscribers can view the entire report by logging into our Research Center via the button at the upper right corner of the screen.

excerpted from our February 6th Asbury Alert

In our January 17th Keys To This Week report (access requires subscription) we pointed out a bullish chart pattern in the AMEX Mexico Index (MXY) that targeted an initial +12% rise to 240.

The green highlights on Chart 1 show that our 240 target was met on Friday.  In addition, the red highlights show that MXY is now positioned right below overhead resistance at 244 to 248, which represents the July 1st and August 1st 2011 benchmark highs.

Chart 1

Especially considering the nearly vertical +12% spike higher to 240 in just a little more than two weeks, this resistance makes the Mexico Index particularly vulnerable to at least a multi-week corrective decline before continuing appreciably higher.

Chart 2 indicates why we think Chart 1 is so significant.  It shows that the AMEX Mexico Index and the S&P 500 (SPX) have maintained a tight and stable positive correlation to one another at various intervals since 2006.  

Chart 2

continued…

Interested investors can get more information about our investment research including sample reports,  client testimonials and recent market calls right here on our website, and can get subscription information by calling 224-569-4112.

Pay Attention To Market Breadth This Week

The following (green highlights) is a brief excerpt and one of the four charts that appeared in our Friday January 27th report entitled, The Week Ahead: 4 Charts To Watch For US Stocks.

Asbury Research subscribers can access the entire report by logging into our Research Center via the button at the the upper right corner of this screen.

The Week Ahead: 4 Charts To Watch For US Stocks

Posted on: Friday, January 27th, 2012

Chart 3: Market Breadth

This chart displays the S&P 500 (SPX) daily since 2011 in the upper panel with the 26-Week New Highs/New Lows Ratio plotted in the lower panel (blue line).  This measure of market breadth is derived by dividing the new highs in the NYSE Composite Index for the last 26 weeks by the new highs plus new lows.

The red highlights on the chart show that this indicator is currently hovering at an historically high extreme of 90%, indicating an extreme number of new 6-month highs being made relative to the number of new highs plus new lows, which has previously either coincided with or closely led most every near term peak in SPX during the past year.

continued…

Guest Column: 2012 US Macroeconomic Analysis/Forecast

The following is another guest commentary from my friend, economist James Padinha.  (James’ first one, entitled The Lay Of The Land, was posted here on November 20th.)

James and I have known each other since 1998, when James was a columnist for TheStreet.com.  Since then we have been corresponding on a regular basis, as a check and balance to each others’ own analysis.  James and I provide each other with a look at “the other side of the elephant”, so to speak, as I supply the technical backdrop while he counters with the fundamental/economic part of the equation. 

James is the best economist I know.  Unlike some more well-known economists, political bias does not taint James’ analysis.  He objectively and intelligently tries to extract the meaning and directional implications of the latest economic data, which is precisely what I try to do every day for Asbury Research.  I can tell you this: when James’ macro-economic analysis and my technical/quantitative analysis agree, we generally have a very good handle on what to expect from US financial asset prices one to to several quarters in advance.

Enjoy!

John Kosar, CMT
Director of  Research

Hate and love and risk.

We remain fundamentally bullish on the economy (we do not expect GDP to post decreases in the next 18-24 months).  We believe strongly that economic expansions die in only one way—the Fed kills them—and in our view Gentle Ben does not have murder on the mind.

We have grown more bullish on the economy in the past few months because key macro indicators have improved.

 Leading indicators:

~ The 10-year/three-month yield curve has been level at about 200 basis points for four straight months.  In our view this curve has to flatten to about 150 basis points and stay there for at least a month or two in order to signal the possibility of a recession unfolding in the next four quarters.

http://research.stlouisfed.org/fred2/categories/115

~ M2 posted a year-ago increase of 10.0% in four of the past five months.  These increases mark the largest since the start of 2009.

http://research.stlouisfed.org/fred2/categories/29

~ The six-months-ahead general business activity index from the Philly Fed soared to 49.0 from 3.7 in the past seven months (note the black line in the chart below).  In our view this is extremely bullish.  Meantime the six-months-ahead capex index has also soared.  This is great news for fans of XLK.

http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2012/bos0112.pdf

~ The manufacturing workweek stands at a relatively high level (40.5 hours).

http://research.stlouisfed.org/fred2/series/AWHAEMAN?cid=32311

 Coincident and lagging indicators:

~ Private-sector employment (1.8%) and total employment (1.3%) are posting year-ago increases not seen since 2006-2007.  Also keep in mind that employment prints are clocking in smaller than normal in part because government employment posted a year-ago decrease in 27 of the past 30 months.

http://research.stlouisfed.org/fred2/categories/32305

~ Mortgage rates sit at a record low.

http://research.stlouisfed.org/fred2/data/MORTGAGE30US.txt

~ Commercial and industrial (C&I) loans increased in each of the past 14 months.  This fact does not draw a lot of ink but banks have indeed been lending.

http://research.stlouisfed.org/fred2/categories/100

~ The core PCE price index posted a year-ago increase of 1.7% in three of the past four months.  These increases mark the largest since the start of 2010.

http://research.stlouisfed.org/fred2/categories/21

 Other observations:

~ The more market participants embrace the notion that the economy is sailing at a decent clip and unlikely to sink the more we like risk-on trades (especially if the technicals are also bullish).  XLI might be one good candidate.

~ In our view a pronounced and quick decrease in long yields (the cash 10 moving to (say) less than 1.60%) would owe not to the economy or her prospects but rather to a credit event or a shock.  In our view the move would probably prove temporary.

~ Our hated home dog NFL season ended with a bang when the 49ers not only covered but also won (63% of the public was on Nawlins).  Congrats to San Fran backers and we now focus on college hoops.

~ Fixed Income ETFs raked in $44.7 billion in 2011.  This marks the beefiest inflow of all ETF categories.  Meantime Dividend ETFs ($18.0 billion) and Large Cap Equity ETFs ($13.9 billion) also posted heavy inflows.  In our view the best investment candidates do not include the most loved assets more often than not.

~ Emerging Markets ETFs redeemed $4.0 billion in 2011.  Small Cap ETFs shed $3.5 billion.  These mark the two heaviest outflows of all ETF categories.  Meantime Financials ETFs ($1.5 billion) and Industrials ETFs ($1.3 billion) also posted chunky outflows.  In our view the best investment candidates include the most hated assets more often than not.  Note that XLF (up 8.1%) and XLI (up 7.8%) boast the second- and third-best sector performances of 2012.  XLB (another risk play) is up 9.7%.

~ Leveraged Short Equity ETFs are sucking in cash and Leveraged Long Equity ETFs are bleeding assets.   In our view this is especially bullish for the S&P 500 in the short term because the exotics crowd typically buys high and sells low.

Cheers and a terrific 2012 to all.

James Padinha

Editor’s Note: For the first time in a while James is available for contract work or salaried work.  If you know of something then please let me know.

New Sample Reports From Q4 2011 Are Now Available (This Time They Really Are)

On Monday we announced via our Asbury Research blog that we had  just updated the Our Research page of our public website to include all new sample reports, which were all produced and distributed to Asbury Research clients between August 10th and December 23rd 2011.

It has come to our attention today that some blog readers were unable to access those reports.  Following a couple of modifications this morning, you should be able to see them now.  They include:

• a Keys To This Week report from October 17th
• a Commentary from August 10th
• an Asbury Alert from October 11th
• a What We’re Watching Today pre-market report from December 14th
• a Sentiment Survey from October 20th
• a Sector Watch report from December 23rd
• and a US Financial Market Chart Book from September 8th

Our apologies for the misfire on our first attempt to make these available. 

This is a good opportunity for blog readers who have been considering becoming Asbury Research subscribers to see some of our most recent research free of charge, and to judge for themselves how well we have anticipated recent US financial market direction.

Click Here to go directly to the Our Research page and view the sample reports, which are marked with a red NEW! and include the date that the report was distributed to Asbury Research subscribers.

Subscription information, including pricing, is available by contacting us directly by Clicking Here or via phone at 224-569-4112.

New Sample Research Reports
Now Available, From Q4 2011

We have just updated the Our Research page of our public website to include all new sample reports, which were all produced and distributed to Asbury Research clients between August 10th and December 23rd 2011.

This is a good opportunity for blog readers who have been considering becoming Asbury Research subscribers to see some of our most recent research free of charge, and to judge for themselves how well we have anticipated recent US financial market direction.

Click Here to go directly to the Our Research page and view the sample reports, which are marked with a red NEW! and include the date that the report was distributed to Asbury Research subscribers.

Subscription information, including pricing, is available by contacting us directly by Clicking Here or via phone at 224-569-4112.

Individual Investors Are At 5-Year
Bullish Extremes On US Stocks

The following (green highlights) is a brief excerpt and one of the 12 charts that appear in our January 12th Sentiment Survey report.

Sentiment Survey displays and analyzes a broad array of both professional and retail investor sentiment data that pertain to the major areas of the US financial markets, including US stocks, US interest rates and the US Dollar.

Excerpt from Asbury Research’s Sentiment Survey
January 12th, 2012
The US Stock Market

Chart 4 measures investor sentiment according to individual investors via the American Association of Individual Investors (AAII) Sentiment Survey, which is plotted by the blue line in the lower panel since 2006. A corresponding weekly bar chart of the S&P 500 appears in the upper panel.

Chart 4

Unlike other metrics in this report, the red highlights on this chart show that these near term-oriented trend followers have just reached an historic most bullish extreme of 69%, a level which has previously coincided with or led every near term peak in the S&P 500 in recent history.

This metric warns of the US stock market’s vulnerability to a near term decline from at or near its current level, which appears likely to begin between now and the end of January.

continued…

Asbury Research subscribers can access the entire 9 page report, including 3 more charts that pertain to the US stock market, by visiting www.asburyresearch.com and logging into the Research Center.

Last Week’s Jump In Oil Prices
Helped To Buoy US Stocks

The following (green highlights) is a brief excerpt from our January 3rd Keys To This Week report (access requires subscription).

Keys To This Week, published on the first business day of the week, is one of 8 different reports that Asbury Research produces for subscribers at various intervals throughout the month.

Excerpt from Keys To This Week
January 3rd, 2011
The US Stock Market

Key# 7 of 11> Intermarket Analysis: Crude Oil Prices. NEAR TO INTERMEDIATE TERM BULLISH.  In our December 16th report entitled 2 Key Intermarket Relationships To Watch Into Early 2012 we pointed out a bearish triangle pattern that initially targeted a decline to $90.00 per barrel.  However, this pattern was “broken” by the sharp rally back to $102.00 on December 27th and 28th.  This broken pattern clears the way for more strength and at least a test of $105.00 which, if reached, would definitively turn the major trend in oil prices positive (bullish).  Considering the tight and stable positive correlation between crude oil prices and the S&P 500 since October 2007, this recent bullish reversal in oil prices is seen as being indirectly bullish for the US stock market.

Crude oil prices spiked higher by $3.91 per barrel or +4% last week, while the S&P 500 coincidentally rose by 27 points or +2%

Asbury Research subscribers can view the entire report by clicking here.

Interested investors can learn more about our investment research, including sample reports and client testimonials, right here on our website, or can get subscription information by calling 224-569-4112.

US Stocks Followed 57-Year December
Seasonal Pattern Almost To The Letter

The chart below first appeared in our November 28th Keys To This Week report, and again in our December 6th Global Seasonal Analysis report (access requires subscription).  Asbury Research subscribers can view these reports by visiting our website and logging into the Research Center.

From our November 28th and December 6th reports:

S&P 500 Weekly Seasonal Pattern During Q4 Since 1957

The chart shows that, on average since 1957, the last week of November is the 2nd seasonally strongest of the entire 4th Quarter, the second weak of December is the 2nd seasonally weakest of the quarter, and that more seasonal strength emerges during the final two weeks of the year.

This year, the S&P 500 (SPX) set a near term peak on December 5th at 1267, which was within just 3 business days of the last week of November (the 2nd strongest week of the quarter as shown on the chart).  SPX then declined by 65 points or -5% into the December 19th low at 1202, which was within just one business day of the 2nd week of December (the 2nd weakest week of the quarter), before rebounding by 67 points or +6% into the December 27th high (this week, the 4th strongest of the quarter).

Mark Twain said that “history doesn’t always repeat, but if often rhymes”.

Frankly, all by itself, seasonality is a tertiary market factor for us.  However, when seasonality corroborates the directional implications of more important market indicators like volatility, investor sentiment, relative performance, market breadth and inter-marlet relationships — as it did this year — it often provides us with a pretty accurate week-by-week road map of upcoming market direction.

Our newly-updated seasonality charts for Q1 2012 will be made available to Asbury Research subscribers in early January.  Look for them in our upcoming January 3rd Keys To This Week report and January Global Seasonal Analysis report.

Best Wishes to our clients and blog readers for a healthy, happy and prosperous 2012.

Happy Holidays, 2011 Performance Update

With just one more week to go, we are starting to compile our 2011 market calls for the US stock market. This has been an especially difficult year for managers as the S&P 500 has remained in a pretty tight range, only venturing as much as 10% above (on May 2nd) and 12% below (on October 4th) 2010′s closing level of 1258 at the extremes.

Nevertheless, through the end of the day today we have managed to outperform the S&P 500 by +9% since January 1st, and by +13% since May 17th.

In addition, at the beginning of March we correctly forecast upcoming relative sector outperformance by Health Care (+13%) and Consumer Staples (+10%) versus the S&P 500 between March and June, and by Utilities (+24%) versus the S&P 500 between March and October, among several other sector-related market calls that we made during the year.

We will make our final performance numbers available, complete with details as we did with our 2010 performance data, by early 2012.

Best wishes to you and yours for a safe and happy
Holiday Season and a healthy and prosperous 2012. 

We’re looking forward to having the opportunity
to help you make 2012 a successful year in the markets.

Replay Of John Kosar’s Dec 14th Webcast
for the Market Technician’s Association

On Wednesday February 14th John Kosar, Director of Research, presented “US Financial Update for December 2011″ as part of the Market Technicians Association’s Educational Web Series.

Click Here to be taken right to the webcast.

We are making this presentation available to Asbury Research blog readers to provide some insight into our approach to global financial market analysis and forecasting, as well as our US financial market outlook into early 2012.

Call 224-569-4112 or click here to request subscription information.

About the Presenter

John Kosar, CMT, is the Director of Research at Asbury Research LLC. John, a 30 year veteran of the US financial markets, spent the first half of his career on the trading floors of the Chicago futures exchanges where he had the opportunity to learn how the financial markets work from the inside out. John is frequently quoted in the media and regularly appears on financial television. He was awarded the Chartered Market Technician (CMT) designation in 1999, is a former Vice President of the Market Technicians Association (MTA) and served on its Board of Directors between 2002 and 2006.

Recapping Our Key 2011 US Stock Market Calls

With only about 2 weeks left in the year, we are starting to look back over our 2011 directional calls on the US stock market for the purpose of updating our annual performance.  (You can view our 2010 performance here.)

2011 has been a particularly challenging year for us simply because the S&P 500 never ventured too far away from its 2010 closing level — it only rose by a maximum of +8% from unchanged on April 29th, and only declined by a maximum of -13%  from unchanged on October 3rd.  For perspective, SPX rose by as much as 22% from 2009′s closing level during 2010.

Since our approach is to be strategic to the quarter (looking to forecast an upcoming 3 month or larger move) and tactical to the month (looking to time our entry into that quarterly move within the upcoming several week period), it is tougher to capture returns when the market does not give you those broad quarterly moves to participate in.

Nevertheless, we did manage to get in front of some important market turns this year.  The following chart references 5 key market calls that we made this year, with the details of each call including: 1) the date, 2) the actual text from the research report (in quotes), and 3) the market’s subsequent reaction (in blue) detailed in the text below.

1. January 12^th 2011: Near Term Bullish But Beware Of February Decline. “Our near term bias on the US stock market turned positive on December 6th. However, most every market metric that we track is currently at an extreme level that has historically coincided with or led one to several month US broad market declines. At least some of this upcoming decline is likely to take place during February.”
   .
   What The Market Did: The S&P 500 first rose by 68 points or +5.3% into the 1344 February 16^th high before declining by 95 points or -7.1% into the 1249 March 16^thlow.
   .
2. March 30^th 2011: Near Term Bullish But Watch For A Late April Top.  “The latest data suggest favorable conditions for the mid March rebound in the US stock market to continue on a near term, week-to-week basis – perhaps through late April.”
   .
   What The Market Did: The S&P 500 rose by 49 points or +3.7% into the 1371 May 2^nd high.
   .
   
3. May 16^th 2011: Intermediate Term Bearish Through Q2, Into Q3.  “For the past month or two we have been saying that downside risk exceeded upside potential in the US stock market.  A failed chart pattern in the Paris CAC-40 indicates that at least a near term top is in place in the French stock market at its recent highs.  The tight 20-year positive correlation between the CAC-40 and the S&P 500 implies that a similarly-important peak is also emerging here in the US.  Looking out over the next few months, intermediate term metrics establish favorable conditions for what appears to be an emerging US stock market peak to extend through Q2 and potentially into Q3 2011.”
   .
   What The Market Did: The S&P 500 actually peaked on May 2^nd (see #2 above), and then declined by 241 points or -18% into the 1102 August 9^th low.
   .
4. August 10^th 2011: Look For A Market Bottom Here.  “The current sharp decline in the US stock market is unlikely to continue appreciably further from here, if at all, without at least a multi-week corrective rebound first.  The common denominator of all the metrics in this report is indications of investor panic — which history tells us is precisely when investors should be buying.  Although current market conditions show the potential for one more eventual leg lower (perhaps during September) before the May US stock market decline runs its course, investors may consider putting some capital to work now, at these levels, in order to participate in whatever type of rally — either corrective or directional — that emerges this month.”
   .
   What The Market Did: The S&P 500 actually bottomed one day earlier, at 1102 on August 9^th , and then quickly rose by 129 points or %11.7% into the 1102 August 31^st high.  Note that the S&P 500 did indeed make one short-lived move to new lows on October 3^rd and 4^thbefore beginning a sharp bullish reversal into late October.
   .
5. October 3^rd 2011:  Intermediate Term Bullish From Here. “Despite last week’s decline, a compelling list of intermediate term indicators have historically preceded 1-2 quarter US stock market bottoms.  These data suggest that any market decline that emerges from here is likely to be temporary, and likely to lead into a more sustainable advance.”
   .
   What The Market Did: The S&P 500 actually bottomed a day later, at 1075 on October 4^th, before rising by 218 points or +20.3% into the 1293 October 27^th high.

Thanks to our subscribers for making 2011 another enjoyable and successful one for us.  We hope that our research allowed you to participate in the limited amount of invest-able price moves that the market gave us this year.

Credit Spreads And Their
Influence On US Equity Prices

The following is one 18 slides, and 2 of the 29 charts, that were included in our December US Financial Market Chart Book (Asbury Research subscribers can click here to view the report), which was published on Friday December 9th.

This particular slide pertains to credit spreads, which measure repayment and counter-party risk, as they pertain to US equity prices.

excerpt from US Financial Market Chart Book
December 9th, 2011
Subject: Credit Spreads

continued…

US Financial Chart Book, one of  8 different reports that Asbury Research produces for subscribers at various intervals during the month, contains our best investment ideas, and the key market factors that will affect them, for the upcoming one to several months.

Interested investors can learn more about our investment research, including sample reports and client testimonials, right here on our website, and can get subscription information by emailing info@asburyresearch.com or by calling 224-569-4112.