CHART OF THE DAY

*(click to enlarge) A few notes

Credit Bubble: (Doug Noland)

Junk bond fund outflows increased to $132 million (from AMG). Issuers included Chukchansi Economic Development Authority $310 billion, Atlantic & Western $300 million, and Rural Cellular $175 million.

Broad money supply (M3) expanded $10.2 billion (week of October 24).

*(below from contrarianinvestor.com)

And what is also crystal clear is that with the recent absolute price level correction in stocks, the relationship of the S&P relative to gold is breaking through the lower level of the 2003 to present trading channel to the downside. Technically, not much lies below this trading channel except the lows in this relationship that date back to the first quarter of 2003. Remembering that as the S&P has underperformed gold in the past, the absolute S&P itself has been declining, does this recent break of relationship trend to the downside between the S&P and gold foreshadow what may indeed be the resumption of the primary bear trend in equities?

Again, we’re not suggesting this to be ultra bearish, but rather we’re simply trying to listen to market history whisper in our collective ears. In our own little financial market playbook of life, we’d consider a break of the SPX and gold relationship ahead below the early 2003 low to be a very negative omen for the macro equity market. We'd consider it "game on" in terms of resumption of the macro bear. Will we get there? We'll see.

As you’ve noticed, we've shaded periods of the S&P underperforming gold in red in the chart below. Of course these also correspond to very weak, or flat at best, periods of absolute S&P price performance. But, in our minds, what is most important in the chart below are the very well defined long term upward trend lines. To be honest, these trend lines are virtually picture perfect in terms of having captured very important price bottoms over the last 15 years.