I brought this up earlier today, the lack of correlation in this market move, but it's now becoming increasingly more visible. Correlation between risk assets is like the health of the move, when there's low correlation between risk assets, there's usually something not right in the market. A risk on move, produces a risk on effect through various asset classes.
Yesterday commodities were the strength that underpinned the market and allowed the market to close the gap, today they are selling off to new lows. Commodities are essentially the fuel of the economy, when we first saw weakness in commodities, I thought, "Trouble in China", 2 weeks later both services and manufacturing PMI printed below 50 showing both to be in contraction. Commodities gave us an early heads up that there were problems in China and thus with global demand.
While the context model is a mix of the different risk assets, it does have some of the credit markets that can be accessed through a Bloomberg terminal, which we can't. Look at how the model of what risk assets are showing ES fair value is, diverging at an increasing rate. As I said earlier, equities are off on their own without support of the broad risk market.
The long standing traditional legacy arbitrage between the Euro (weak) and the market is completely broken today. This mean the $USD is stronger and stocks usually go down on dollar strength. We are seeing that happening in crude oil today as I just posted.
The ascending wedge that was very visible today in all of the averages itself is a sign that something isn't right with the move.
Furthermore the market's usually move together, the lack of relative strength in both the S&P, but more so the Dow at a current loss also suggests there is no broad risk appetite. It looks more like a set up then anything else at this point.
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