Lighthouse Investment Manag Management

Weekly Chart Window

July 29, 2013

Weekly Chart Window - July 29, 2013

Page 1

Lighthouse Investment Management

Contents
TIPS-derived Inflation Expectations .............................................................................................................. 3 Stock Market and TIPS-Derived Inflation Expectations ................................................................................ 4 Trend: Moving Averages ............................................................................................................................... 5 Trend: MACD................................................................................................................................................. 6 Stocks Above 50-Day MAVG ......................................................................................................................... 7 Stocks Above 200-Day MAVG ....................................................................................................................... 8 Net New Highs: NASDAQ .............................................................................................................................. 9 Net New Highs: NYSE .................................................................................................................................. 10 New Highs/Lows Ratio: NASDAQ ................................................................................................................ 11 New Highs/Lows Ratio: NYSE ...................................................................................................................... 12 Risk-on / Risk-Off ........................................................................................................................................ 13 Lighthouse Timing Index ............................................................................................................................. 14 Chart Spotlight: Nikkei / JPY........................................................................................................................ 15

Weekly Chart Window - July 29, 2013

Page 2

Lighthouse Investment Management

TIPS-derived Inflation Expectations

Observations: Inflation expectations are calculated by subtracting real (TIPS) yields from nominal yields Inflation expectations continue to rise The Fed prefers elevated inflation expectations in order to motivate consumers to spend. A slowing velocity of money counters the Fed's efforts. Recent talk from Bernanke about possible 'tapering' of QE later in 2013 led to doubts regarding the Fed's policy of N-GDP targeting, only adopted in late 2012. CONCLUSION: In order for a successful transition, Bernanke's successor (Janet Yellen or Larry Summers) needs a 'good' reception from markets. The current setback in bonds might therefore be actually wanted / engineered by the Fed in order to create some upside potential for asset prices.

Weekly Chart Window - July 29, 2013

Page 3

Lighthouse Investment Management

Stock Market and TIPS-Derived Inflation Expectations

Observations: Since January 2012, the S&P 500 is basically uncorrelated to the yield of 10-year Treasury bonds (r2 = 0.02), but very much correlated to the expected rate of inflation over the next 10 years (r2 = up to 0.75). Since mid-February 2013, the strong correlation between expected inflation and the S&P 500 Index has reversed into a negative one. This is quite unusual.

Conclusion: Assuming the bond market (despite price manipulation by the Fed) correctly reflects market expectations, the S&P 500 should be closer to 1,400 points given inflation expectations.

Weekly Chart Window - July 29, 2013

Page 4

Lighthouse Investment Management

Trend: Moving Averages

Observations: All moving averages have a positive slope (pointing upwards) The 10-day mavg is above all other averages - a good sign

Conclusion: The uptrend is still intact

Weekly Chart Window - July 29, 2013

Page 5

Lighthouse Investment Management

Trend: MACD

Observations: The S&P 500 Index is around 8% above its 200-day moving average, which is quite 'extended' The S&P is less extended from its 100-day moving average (which is to be expected, as shorter averages tend to follow the index more quickly) All three derivatives of moving averages are rising, suggesting the stock market is gaining momentum.

Conclusion: The US stock market 'worked off' its extended condition, especially from the 200-day moving average. After breaking new all-time highs, the market looks like it would move higher yet.

Weekly Chart Window - July 29, 2013

Page 6

Lighthouse Investment Management

Stocks Above 50-Day MAVG

Observations: 81% (previously 77%) of the 500 stocks within the S&P Index are above their 50-day moving average

Conclusion: More than half of the S&P 500 members are in a medium-term uptrend. This is a good sign. Any reading below 50% indicates trouble for the bulls.

Weekly Chart Window - July 29, 2013

Page 7

Lighthouse Investment Management

Stocks Above 200-Day MAVG

Observations: 91% (previously 89%) of the 500 stocks within the S&P Index are above their 200-day moving average

Conclusion: More half of the stocks in the S&P 500 Index are in a long-term uptrend. This is a healthy sign. A drop below 50% would indicate trouble.

Weekly Chart Window - July 29, 2013

Page 8

Lighthouse Investment Management

Net New Highs: NASDAQ

Observations: The number of Nasdaq-listed stocks with new 52-week highs exceeds the number of stocks with new 52-week lows. This means the current record highs for the S&P 500 Index are supported by a large number of individual stocks.

Conclusion: The rally has a good 'breadth'. No warning flag.

Weekly Chart Window - July 29, 2013

Page 9

Lighthouse Investment Management

Net New Highs: NYSE

Observations: The number of NYSE-listed stocks with new 52-week highs is higher than the number of stocks with new 52-week lows.

Conclusion: The breadth of the recent stock market rally has improved further.

Weekly Chart Window - July 29, 2013

Page 10

Lighthouse Investment Management

New Highs/Lows Ratio: NASDAQ

Observations: Nasdaq-listed stocks with new 52-week highs exceed the number of stocks with new 52-week lows by a ratio of 16:1, with a rising trend (previously = 13:1). The ratio has exceeded its previous peak, which can be interpreted as a positive sign.

Conclusion: A fall in the ratio below 1 would indicate trouble. This is currently not the case. The ratio is above its 50-day moving average - a good sign.

Weekly Chart Window - July 29, 2013

Page 11

Lighthouse Investment Management

New Highs/Lows Ratio: NYSE

Observations: NYSE-listed stocks with new 52-week highs exceed the number of stocks with new 52-week lows by a ratio of 8:1, with a rising trend (previously = 7:1). The rally since the beginning of 2013 has been accompanied by falling peaks in the ratio, which can be interpreted as a negative sign. The signal clarity from this ratio might be distorted by fixed-income ETF's listed on the NYSE (bond ETF's often rise as stocks fall).

Conclusion: The ratio is exceeding its 50-day moving average - a good sign.

Weekly Chart Window - July 29, 2013

Page 12

Lighthouse Investment Management

Risk-on / Risk-Off
\

The general market (SPY) is underperforming high dividend shares (SDY), (red line, bearish) Stocks are outperforming bonds (blue line, bullish) The high-yield bond ETF (HGY) is outperforming investment-grade ETF (LQD); green line (bullish)

Equal-weight ETF (RSP) is stopped outperforming market cap-weighted ETF (SPY); green area

CONCLUSION: 2 out of 4 indicators suggest stock market is in an uptrend

Weekly Chart Window - July 29, 2013

Page 13

Lighthouse Investment Management

Lighthouse Timing Index

Observations: The Lighthouse Timing Index rose to +10 (previously: +8 points)

Conclusion: Our composite index suggests that the upwards trend is intact.

Note: This index is a trend-confirming indicator, and will not be able to anticipate market tops or bottoms in advance. Due to smoothing of data, a certain time lag of about two weeks is to be expected.

Weekly Chart Window - July 29, 2013

Page 14

Lighthouse Investment Management

Chart Spotlight: Nikkei / JPY

The Japanese stock market index (Nikkei, pink area) is highly correlated with the JPY/USD exchange rate (black line) Both have not been able to make new highs after May A strengthening of the Japanese Yen would most likely lead to losses for Japanese stocks. Investors betting on rising stocks would lose twice - on the equity portion as well as on the currency (most are hedged as they assumed a weak Yen).

Any questions or feedback welcome. Alex.Gloy@LighthouseInvestmentManagement.com

Disclaimer: It should be self-evident this is for informational and educational purposes only and shall not be taken as investment advice. Nothing posted here shall constitute a solicitation, recommendation or endorsement to buy or sell any security or other financial instrument. You shouldn't be surprised that accounts managed by Lighthouse Investment Management or the author may have financial interests in any instruments mentioned in these posts. We may buy or sell at any time, might not disclose those actions and we might not necessarily disclose updated information should we discover a fault with our analysis. The

Weekly Chart Window - July 29, 2013

Page 15

Lighthouse Investment Management

author has no obligation to update any information posted here. We reserve the right to make investment decisions inconsistent with the views expressed here. We can't make any representations or warranties as to the accuracy, completeness or timeliness of the information posted. All liability for errors, omissions, misinterpretation or misuse of any information posted is excluded. +++++++++++++++++++++++++++++++++++++++ All clients have their own individual accounts held at an independent, well-known brokerage company (US) or bank (Europe). This institution executes trades, sends confirms and statements. Lighthouse Investment Management does not take custody of any client assets.

Weekly Chart Window - July 29, 2013

Page 16