Best of the Week
Most Popular
1.UK House Prices BrExit Crash NOT Likely Despite London Property Market Weakness - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit Implications for UK Stock Market, Sterling GBP, House Prices and UK Politics... - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - Nadeem_Walayat
7.UK Interest Rate Cut to 0.25% Imminent and More QE Money Printing - Nadeem_Walayat
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.The Stock Market is Reading it Wrong! - Chris_Vermeulen
10.Breakouts Galore in Gold and Silver - Jordan_Roy_Byrne
Free Silver
Last 7 days
Silver Bull Faces Correction - 22nd July 16
The Serious Warning No One’s Talking About - 22nd July 16
Stock Market Insight from Greed, Volatility, and Put/Call Ratio - 22nd July 16
What Will Happen To the Stock Market When Interest Rates Rise? - 22nd July 16
How to Escape the World’s Biggest Ponzi Scheme - 22nd July 16
Addicted to Debt - We Can’t Borrow from the Future Anymore - 21st July 16
Not Everything Is Bullish for Gold - 21st July 16
Don’t Get Sucked Back Into the Stock Market - The Big Picture Hasn’t Changed - 21st July 16
Silver – Caught Inside - 21st July 16
Forex: "The Markets Are Getting Exciting!" - 20th July 16
China Economic Troubles - Is Kyle Bass Finally Getting His Revenge? - 20th July 16
Why Lithium Will See Another Price Spike This Fall - 20th July 16
The Peak Oil Paradox Revisited - 19th July 16
SPX Challenges the Upper Trendline - 19th July 16
Missing ’28 Pages’ of the 9/11 Report Released into Blitzkrieg of World Events - 19th July 16
Likelihood of Organized Disruption at GOP Convention - 19th July 16
More on the ‘Breadth Thrust’ and Stock Market Internals - 19th July 16
FX Traders: Get a Free Week of Forecasts (Details inside) - 19th July 16
Ups and Downs in Gold and Crude Oil Price - 19th July 16
Keep an Eye on ‘Bitcoin’ as the Next ‘Financial Crisis’ Starts! - 18th July 16
Erdogan Might Have Known about the Coup but Didn’t Prevent It on Purpose - 18th July 16
More Deflation Ahead: Silver, Gold And Their Mining Stocks A Must-Have - 18th July 16
Stock Market Minor Top? - 18th July 16
5 Best Gold and Silver Junior Mining Stocks in 2016 - 17th July 16
Gold And Silver – NWO-Created Tragedies Will Never End, Seek Truth - 16th July 16
How Long Can Buybacks Continue To Support A Market Which Is Standing On A Fundamentally Flawed Premise? - 16th July 16
Will They Come For Your IRA? - 15th July 16
Gold’s Record Selling Overhang - 15th July 16
Capitalism Has Entered a New Era—and Historic Stock Market Investing Returns Are Gone Forever - 15th July 16
Gold Price Could Hit $5,000 or Even $10,000 in a Few Years - 15th July 16
Junior Gold and Silver Mining Funds or Individual Gold and Silver Mining Stocks - 15th July 16
The Soaring Risk of Flying in Bernanke's Helicopter - 15th July 16
The Broad Stock Market, Helicopters and Gold - 15th July 16
The Curious Case of Vanishing Lady Liberty; Only Gold and Silver Remember Her - 15th July 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Forex Forecasts

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.


© 2005-2016 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

Catching a Falling Financial Knife