Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2019 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