Commodity Bloodbath in 2015

Posted on December 31, 2015 by

In July 2015, I wrote a post on the linkage between commodity prices and stock prices during five periods of declining commodity prices in the past 35 years: 1980-1982, 1984-1986, 1997-1998, 2008-2009, and 2014-201. I concluded that four out of the five periods corresponded to simultaneous or subsequent declines in the US stock market. AND we are currently in the fifth period and commodity prices continue to tumble. Continue reading →

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U.S. Manufacturing Sector Now Shrinking

Posted on December 31, 2015 by

In November of 2015, I reported that U.S. Manufacturing was at Recession Levels, but the news has gotten worse. The Manufacturing sector is now shrinking. Continue reading →

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Global Trade at Recession Levels

Posted on December 31, 2015 by

My last two posts focused on bearish divergences in the equity markets, but there are several fundamental factors that are equally bearish. The following article focuses on global trade.  Continue reading →

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Transportation Sector – Ominous

Posted on December 30, 2015 by

I wrote an article yesterday about the growing divergence between the junk bond and equity markets. There is a second divergence within the equity market that is equally ominous. Continue reading →

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Junk Bond Meltdown

Posted on December 29, 2015 by

I initially discussed the implications of widening junk bond spreads in a prescient September 2015 post titled "Widening Junk Bond Spreads: Bull Market in Peril," which was inspired by a MarketWatch article titled "Junk Bond Market: Danger Ahead," written by Brett Arends.

In September, junk bond spreads (a leading equity market indicator) had begun to widen. In the three months since my September post, junk bond spreads have almost doubled, widening by another 300 basis points. As you might expect, junk bonds have now become a very hot topic.

The following article highlights the recent developments in the junk bond market and provides links to several interesting articles on the current state of the junk bond market. Continue reading →

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Seasons Greetings From Trader Edge – 2015

Posted on December 23, 2015 by

Seasons greetings from Trader Edge.

It has been a crazy year for me personally. We lost our 12-year old White German Shepherd early this year due to complications after surgery. Our 9-year old Pembroke Welsh Corgi had emergency surgery the day before Thanksgiving to remove a mass on her spleen that was bleeding into her abdomen. Thankfully, she is recovering well. My wife and I built and moved into our new house in May, which resulted in countless unexpected projects throughout the year. And, we finally closed on the sale of our old house earlier this month.

Now that all of that is behind me, I plan to devote more time to exploring new research and strategy ideas in 2016 - which should provide the genesis for some interesting articles. I hope that you have found some of the Trader Edge articles to be useful this year. I have enjoyed corresponding with many of you throughout 2015 and I appreciate all of the feedback on my second options book:

Exploiting Earnings Volatility: An Innovative New Approach to Evaluating, Optimizing, and Trading Option Strategies to Profit from Earnings Announcements

I look forward to exploring new tools, concepts, and insights with you when posts resume in January. Best wishes for a happy 2015 holiday season and for a prosperous 2016.

Brian Johnson

Copyright 2015 - Trading Insights, LLC - All Rights Reserved.

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Recession Model Forecast: 12-01-2015

Posted on December 22, 2015 by

The following article updates the diffusion index, recession slack index, aggregate recession model, and aggregate peak-trough model through November 2015. In January 2015, I created a new explanatory variable for a market-based indicator; I added two new explanatory variables in April and June 2015, and one more in September 2015. After adding a number of new economic and market-based variables recently with very strong explanatory power, I decided to cull three of the original independent variables with the weakest historical performance and most questionable cause and effect recessionary influence. The resulting 19-variable model has a very diverse set of explanatory variables and is very robust.

Each of the explanatory variables has predictive power individually; when combined together, the group of indicators is able to identify early recession warnings from a wide range of diverse market-based, fundamental, technical, and economic sources. After the latest additions and deletions, the total number of explanatory recession model variables is now 19. The current and historical data in this report reflect the current model configuration with all 19 variables. Continue reading →

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Gold Still Overvalued by 23.5%

Posted on December 6, 2015 by

I read an interesting article by Neil Azous in the December 2015 issue of Modern Trader ("Has the Golden Moment Passed?") that inspired me to do some further research into modeling gold prices. The resulting research greatly enhanced my understanding of the fundamental drivers of gold prices and even corrected several misconceptions that I have carried with me for the past 30 years. Continue reading →

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