Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Shanghai, China One Step Closer to Becoming World’s Gold Hub - 6th May 15
What's Next for The U.S. Dollar and Currencies? - 6th May 15
Stock Market Sell Signal on S&P Global 1200 Confirmed by Various Charts - 6th May 15
Crude Oil’s Big Move Comes Down to One Thing - 6th May 15
Survival Guide for the Mother of All Commodity Bear Markets from Veteran Bottomfisher - 6th May 15
U.S. Government Using Subprime Mortgages To Pump Housing Market Recovery - 6th May 15
Final Opinion Polls Forecast Labour-Lib Dem Minority SNP Supported Government - Election 2015 - 6th May 15
U.S. Fears a European “Lehman Brothers” - 5th May 15
How the UK Election Represents the State of Europe - 5th May 15
Crude Oil Price Meets Solid Resistance - 5th May 15
Nick Clegg Sheffield Hallam Seat Won, Race on to Save Lib Dem Marginal's - 5th May 15
Stock Market Waiting for Clarity - 5th May 15
Mice, Mazes & Investor Perception Management - 5th May 15
Conservatives Nightmare of Labour - Lib Dem Minority Government - Election Forecast 2015 - 5th May 15
Gold Long-term Outlook for Massive Parabolic Run to $5,000 - 4th May 15
Silver Bear Market Downside Momentum Easing - 4th May 15
Silver and NASDAQ – Long, Medium and Short Trends - 4th May 15
Let's Make Silver Shine Even Brighter Than Gold - 4th May 15
Six Silver Questions and Perspectives - 4th May 15
Stock Market Last Hurrah? - 4th May 15 - Andre_Gratian
Stocks – Bulls, Bears, And Pigs : Which Are You? - 4th May 15
The Energy Complex: Very Interesting Chartology - 4th May 15
U.S. Long Bond, an Historic Trading Opportunity? - 4th May 15
This Financial “Seismograph” Signals A Monetary Earthquake - 4th May 15
Nate Silver UK General Election Forecast 2015 as Wrong as 2010? - 4th May 15
U.S. GDP Sucking Spoilt Milk From A Bloated Dead Sow - 3rd May 15
Stocks, Gold and Oil Markets Chopsville - 3rd May 15
UK Election 2015 Forecast - The Most Probable Outcome is... - 3rd May 15
Kate Gives Birth to Coalition Government - 2nd May 15
Stock Market Correction Time? - 2nd May 15
Gold And Silver - Thieving Bankers Operate In Open; Public Have Eyes Wide Shut - 2nd May 15
U.S.A. Caught In Enormous Policy Vise - ZIRP & QE Destructive Influence - 2nd May 15
Crude Oil Price Bear Market Is Over - 2nd May 15
Gold and Silver Bear Squeeze Comes and Goes - 2nd May 15
UK Election Forecast 2015 - Who Will Win? - 1st May 15
Gold Developments Say New Mine Supply Is Peaking - 1st May 15
Emerging Mexican Silver - 1st May 15
Investigating The U.S. GDP Deflator: Wildly Differing Results Depending on Your Choice - 1st May 15
JP Morgan Cornering Silver Bullion Market? - 1st May 15
Baltimore Riots Whose Fault? - 1st May 15
Monetary And Economic Insights From Incrementum’s Advisory Board - 1st May 15
Your Best Stock Investment in the "Cloud" Is Right Here - 1st May 15
Stock Market Kondratieff Waves and the Greater Depression 2013- 2020 update - 1st May 15
How One Chart Is Changing My Outlook on Crude Oil Prices - 1st May 15
The Real Reason Why Obama Wants to Lift Sanctions on Iran - 30th Apr 15
Gold and the New U.S. and UK Recession - ZIRP to Continue - 30th Apr 15
Uranium Price Is About to Rocket - 30th Apr 15
Immigration Crisis Drives a Deep Wedge Between E.U. States - 30th Apr 15
Labour Leads in Nick Clegg's Sheffield Hallam Seat, Latest Ashcroft Opinion Poll - 30th Apr 15
Is the Fed about to Ignite the Stock Market Sell in May and Go Away Trade? - 30th Apr 15
Bill Gross on Pimco Hiring Bernanke and Fed Interest Rate Hike 2015 - 30th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The War on Cash!

Waiting for the Stock Market To Show its Hand on Next Trend Direction

Stock-Markets / Stock Markets 2013 Jan 05, 2013 - 08:05 AM GMT

By: Tony_Pallotta

Stock-Markets

For the week ending January 4, 2013, the SPX was up 4.6%, the Russell small caps were up 5.6% and the COMP was up 4.9%.

The current equity price action is viewed as a normal retracement prior to resumption of the downtrend, a final battle for direction. Though we may see another slight push higher, probability favors a test of support which is roughly 1440 on SPX, 13250 on the Dow, 850 on the Russell and 3040 on COMP. If support holds, then a sustainable uptrend may be forming. If it cannot hold then resumption of the downtrend is most probable.


At a minimum though we are profiling a test of support. Outside of equity, the story is different and far clearer.

The continued weakness in AAPL, continued decline in commodities including soft commodities and the FX markets are indicating that beyond equity, there is a general move to risk off.

Asset Class Correlations

For the week ending January 4, 2013, the EUR was down 1.1%, copper was up 3.2%, 30 year yield was up 25bp and the Aussie Dollar was up 1.1%. The most profound change is the USD which is likely triggering long and began prior to the FOMC statement and the subsequent inability of the EUR to hold support. Copper though up on the week is likely to resume the downtrend and will trigger short at roughly 3.58.

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 vs S&P 500

30 Year Yield vs S&P 500

Euro vs S&P 500

5 Year Treasury Break Even vs the S&P 500

Sentiment

Market sentiment saw an extreme shift in one week with volatility putting in one of the biggest reversals on record. The skew or distribution of implied volatility though elevated on the week, was down sharply on Friday at 115.53.

Implied Volatility Skew Vix Spread vs S&P 500

Skew Vix Ratio vs S&P 500

Funds Flow

For the week ending December 26, 2012, $3.6 billion flowed out of domestic equity funds while $2.5 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.

For the month of December, domestic equity funds had a net outflow of $22.0 billion while bond funds had a net inflow of $9.8 billion. For 2012, domestic equity funds had a net outflow of $149.3 billion while bonds funds had a net inflow of $295.4 billion.

Domestic Equity Mutual Fund Flows vs S&P 500

Bottom Line

The current equity price action is not viewed as a counter trend rally but rather a normal retracement prior to triggering short. Though the magnitude is greater than normal that is how it is profiling. The basis for that statement being the previous attempt to hold support failed and the prior downtrend never exhausted itself.

So where that leaves us is waiting for confirmation of where the market goes next. You never chase a market nor do you chase this move. At a minimum support will be tested. If that holds a new uptrend will form. If that fails, we will likely see resumption of the downtrend. There is no sense getting emotional or speculating where the market will go. Let the market show it's hand. It always does.

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.

Tony Pallotta Archive

© 2005-2015 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