Best of the Week
Most Popular
1.London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - Nadeem_Walayat
2. Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - Michael_Noonan
3.Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - Nadeem_Walayat
4.Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - Jim_Willie_CB
5.Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - Keith Markey
6.Gold Prices 2014: Do What Goldman Does, Not What It Says - David Zeiler
7.Bitcoin Price Strong Appreciation to Be Followed by Declines? - Mike_McAra
8.Gold Preparing to Launch as U.S. Dollar Drops to Key Support - Jason_Hamlin
9.Doctor Doom on the Fiat Money Empire Coming Financial Crisis - Andrew_McKillop
10.The Real Purpose Of QE - It’s Not Employment - Darryl_R_Schoon
Last 72 Hrs
This is the Next “Big Thing” in Energy - 24th Apr 14
Rome Wasn't Burnt In A Day - 24th Apr 14
When Does Government Policy Become Criminal Behavior? - 24th Apr 14
The Great Recession Grinds On - Measuring Misery around the World - 24th Apr 14
Apple, Facebook Beat Expectations - Stock Markets Long-term Recap - 24th Apr 14
Broad Stock Market Situation on the Remains Tense as Companies Release Quarterly Earnings - 24th Apr 14
How High-Frequency Traders Use Dark Pools to Cheat Investors - 24th Apr 14
Stock Market Bears Wrong Again, Apple to Push Dow to New All time High - 24th Apr 14
Gold Prepared for the Attack of the Short Sellers - 24th Apr 14
Weak U.S. Housing Data Supports Euro - 24th Apr 14
Killing the Maximum-Wage Myth - 23rd Apr 14
U.S. Quarterly Economic Review - Optimism at the Fed - 23rd Apr 14
Why Mohamed El-Erian Left Pimco - Video - 23rd Apr 14
QE Is A Fraud Perpetrated By Made Men - 23rd Apr 14
Gold and Miners Outperform Once Again - 23rd Apr 14
G-20 and the US Tell the Bank of Japan to End Quantitative Easing - 23rd Apr 14
How to Get in the Trading Game and Profit - 23rd Apr 14
Fed Follies, U.S. Housing Market Fiasco - 23rd Apr 14
What Will December 31, 2014 Financial Headlines Look Like? - 23rd Apr 14
Why Gasoline Prices are Surging Again - 22nd Apr 14
Cold War 2.0 - 22nd Apr 14
The JIS – Junk Ideology Syndrome - 22nd Apr 14
How to Avoid Losing All Your Money - 22nd Apr 14
Silver Up, Stocks S&P Down - 22nd Apr 14
U.S. Mainstream Media Propaganda Setting the Stage for War With Pakistan - 22nd Apr 14
U.S. Interest Rates are NOT Rising! - 22nd Apr 14
A Crisis vs. the REAL Crisis: Keep Your Eye on the Debt Ball - 22nd Apr 14
Bitcoin Implications of Lack of Price Action - 22nd Apr 14
Japan - The Twilight Of The Rising Sun - 22nd Apr 14
Is This What a Credit Bubble Looks Like? - 22nd Apr 14
The Dark Side Of The Silver Mining Industry - 21st Apr 14
Strong U.S. Dollar Rally Could Pull Rug From Under Gold and Silver - 21st Apr 14
Silver Feeble Rally Fails to Hold Breakout, Falling Back Towards Support - 21st Apr 14
Stock Market Smart Money – All Out or More to Go? - 21st Apr 14
Fast Rising Pump Prices Counterattack - 21st Apr 14
Extreme Climate Change And Life On This Planet - 21st Apr 14
Gold and Silver Stocks Sitting Tight - 21st Apr 14
Stock Market Minor Correction Imminent - 21st Apr 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Market Asset Class Correlations Imply Swift Selling in Coming Days

Stock-Markets / Financial Markets 2012 Dec 29, 2012 - 07:08 AM GMT

By: Tony_Pallotta

Stock-Markets

For the week ending December 28, 2012, the SPX was down 1.9%, the Russell small caps were down 1.7% and the COMP was down 1.8%.

The model triggered short all indices in mid October. The move had not fully exhausted itself when a countertrend rally began the week of Thanksgiving. But the move was being profiled as countertrend based on the stress profile and therefore not the start of a new uptrend. That was confirmed this week when support levels failed to hold. And based on Friday's close a renewed short signal was issued for the Dow, SPX and COMP.


Only the Russell remains in a countertrend rally though TF (Russell futures) failed to hold support in extended Friday trading, thus confirming an end to is countertrend rally.

Market leader Apple (AAPL) remains in a confirmed downtrend on the weekly chart, while the daily chart is flat with a bearish bias. The monthly chart is currently failing support at 528 with next support at 475.

Asset Class Correlations

For the week ending December 28, 2012, the EUR was up 0.3%, copper was up 0.9%, 30 year yield was down 4bp and the Aussie Dollar was down 1.6%. The two biggest asset class headwinds facing equity markets remain copper which is very close to short on the daily chart and AUD which triggered short on the daily chart as of December 21.

The multi-month divergence with equity and the EUR, AUD, copper and 30 year yield remains. As a result equity may show greater relative weakness as part of any future asset class convergence. Therefore, using any of these asset classes as a directional indicator may likely produce false signals.

There is also a noticeable divergence with the 5 year Treasury break even as shown below.

Copper versus S&P500

Euro versus S&P500

30-Year Yield versus S&P500

5-Year treasury Break Even versus S&P500

Sentiment

Market sentiment went from complacent to sending a major warning sign of impending stress within the market. On the week the vix was up 27.4% while implied volatility skews remains elevated showing a "skewed" distribution.

Implied Volatility Skew Vix Spread versus S&P500

Funds Flow

For the week ending December 19, 2012 $5.2 billion flowed out of domestic equity markets while $.4 billion flowed in to both municipal and taxable bonds. A very sharp divergence exists over the past few months as domestic equity has seen a net drawdown while equity markets have moved higher.

Month to date, domestic equity funds have seen a net outflow of $18.3 billion while bond funds have seen a net inflow of $7.3 billion. Year to date, domestic equity funds have seen a net outflow of $132.5 billion while bonds funds have seen a net inflow of $295.6 billion.

Domestic Equity Mutual Fund Flows versus S&P500

Bottom Line

The multi-week counter trend rally has ended in all indices with the exception of the Russell. Large caps and tech have regained the short signal on the daily chart as of Friday's close. The momentum profile is such that the market could experience swift selling in the coming days aside from the fiscal cliff news.

About The Big Picture: All technical levels and trends are based upon Rethink Market Advisor models, which are price and momentum based. They do not use trend lines nor other traditional momentum studies. To learn more about how the models work, please click here or visit http://rethink-markets.com/model-profile

© 2012 Copyright  Tony Pallotta - Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014