A Sign of Growth
- Posted by Greg Harmon
- on April 30th, 2014
AS you sit wondering what 3 words Janet Yellen and her posse will change int he Federal Open Market Committee Statement today, think about this as well. Over the last month with the broad market going nowhere there has been one major sign of a move to the growth environment. And it comes down to this simple chart.
The chart above is a ratio of the S&P 500 ($SPY) to the Vanguard Emerging Markets ETF ($VWO). Technically speaking it is moving higher in an AB=CD pattern that targets the ratio at about 5.30 in September. That is a big move, nearly 16% above the current level.It can be interpreted in many ways. A flow of capital from emerging markets to the broad US Market is one way. A sign of growth being in favor is one of them. The ratio can reach that peak in 4 different ways. With the US market rising while emerging markets stay in place or fall. The US market could remain stable while emerging markets fall. Both could rise but the US market faster, or both could fall but the US market slower. This chart and the flow from emerging markets to growth do not care which combination it is. Keep an eye on this ratio as you listen to Janet tell you not where interest rates are going, but where the current state of growth is.
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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