Signs of improvement

While the bad news has been relentless these past few weeks, there have been signs that a recovery is just around the corner. Numerous correlational indicators have improved markedly since New Years, even in the face of the weakness in equities these past two weeks. These indicators include:

A huge decline in the A2/P2 spreads in 2009 (Calculated Risk) indicating that credit is beginning to flow again;

An increase in M3 Money Supply, indicating that the Fed's efforts to reinflate are getting traction;

An increase in 10 year Treasury yields, indicating an increase in risk appetite;

Bullish moves in silver and crude, silver in particular has been tightly correlated to SPX;

A weekly drop in the cash holdings of money market mutual funds, which might indicate that cash on the sidelines is coming back into the markets;

Continued improvement in the BDI, suggesting that global trade is starting to recover;

And strength in Markit's ABX and CMBX indices, again measures that are correlated to SPX.

All this is bullish for equities, although some indicators are becoming overbought (like TRIN from Matt Trivisonno)

Signs of improvement - silver and crude

Since last August, both silver and crude have been tightly correlated to SPX, with all three instruments being synchronized in the timing of their highs and lows. And while the heights of their respective highs and lows varied, the directions of their moves remain correlated. Silver and SPX, in particular, have been strongly correlated.

Below is a Stockcharts chart with silver and SPX in the top panel, crude ($WTIC) and SPX in the second panel, and silver and crude in the third panel. Note how the intermediate lows of the three instruments are synchronized, with silver's 52 week low being put in at the end of October, SPX's low on Nov 21st, and crude's low in late December.

Last week, silver managed to put in a lower high, and this past week, the metal put in a higher high, bullish signs that the uptrend will continue. This is in contrast to SPX, which was down on the week.

Crude, while not as strong as silver, managed a higher low before closing up for the week.

Given the past correlation to equities, these are bullish signs that stocks will rise.