Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Stock Market - All Is Calm, All Is Not Right - 27th Aug 16
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

Stock Markets Remain at Extreme Levels, Asset Class Correlations

Stock-Markets / Stock Markets 2013 Feb 10, 2013 - 11:42 AM GMT

By: Tony_Pallotta

Stock-Markets

For the week ending February 8, 2013, the SPX was up 0.3%, the Russell small caps were up 0.3% and the COMP was up 0.5%.

The only noticeable divergence within the indices remains the Nasdaq 100 which has failed to take out prior highs and has shown a clear loss of momentum. Technically it has violated model support and therefore is profiled as flat.

Small, mid and large cap indices remain in an uptrend as daily support has not failed though they are showing some loss of upside momentum. If you are long equity, stops that are recommend are roughly 1,500 on the S&P500, 902 on the Russell and 13,850 on the Dow.


FX markets are fueling risk as the JPY pairs are at an extreme overbought level and starting to show signs of a reversal. Position data is confirming that a trend reversal in USD/JPY is probable. As a result the model remains flat equity as the risk reward is not currently favorable.

Asset Class Correlations

For the week ending February 8, 2013, the EUR was down 2.0%, copper was down 0.6%, 30 year yield was down 4bp and the Aussie Dollar was down 0.8%.

The model has triggered short AUD/USD which will likely put downward pressure on the JPY pairs, pressuring copper and yield lower. The EUR/USD failed to hold model support and is flat, though close to triggering short. Inversely, the dollar closed above model resistance and therefore flat, but close to triggering long. As part of a JPY unwind, we anticipate a short EUR and long DXY in the foreseeable future.

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. Using any of these asset classes as a directional indicator may likely produce false signals. Our preference is to use JPY pairs.

This week saw a renewed divergence with 5 year Treasury break evens which were down 13bp on the week and 8bp on Friday.

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 remains extremely complacent as viewed through the options market with the VIX at 13.02, a 6 year low. Implied volatility skew though has been rising averaging 123.86 for the week and closing at 125.67.

Skew is a measure of how implied volatility is distributed. The lower the reading the less skewed the curve, indicating a normalized distribution.

Implied Volatility Skew Vix Spread vs S&P 500

Skew Vix Ratio vs S&P 500

Funds Flow

For the period ending January 31, 2013, $3.5 billion flowed in to domestic equity funds while $3.5 billion flowed in to both municipal and taxable bonds. After nearly a year of continuous equity outflows, this is the fourth consecutive inflow into domestic equity funds.

Domestic Equity Mutual Fund Flows vs S&P 500

For the month of January, domestic equity funds had a net inflow of $6.8 billion while bond funds had a net inflow of $29.5 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.

Bottom Line

Equity markets are technically in an uptrend as are all asset classes. But with the extreme levels on all major JPY pairs the model remains flat equity. We view other asset classes more favorable from a risk reward standpoint.

JPY cross pairs need to be monitored closely for any signs of an unwind. They remain highly stretched at current levels with COT data confirming a probable reversal. This will pressure other risk assets ahead of the general equity markets.

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

© 2013 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

© 2005-2016 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