Why We Aren’t Buying this Rally…”CDS spreads give warning sign.”

Sunday, November 22, 2015
By Paul Martin

By Christine Hughes, Canada. Chief Investment Strategist, OtterWood Capital:
November 21, 2015

The market has recovered from the August and September lows bringing the S&P 500 back between 2,000 and 2,150 the trading range we’ve sat in most of the year. The price action in the CDS market does not confirm the bounce in equities though. The chart below is the S&P 500 and the investment grade CDS spread (inverted) going back to 2013. These two indices tend to move together since lower credit worries (lower CDS spreads) are a good signal for stocks, but as you can see in the chart these indices have diverged.

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