Risk Assets

 Unfortunately the CONTEXT model has a lag but it is clearly showing ES diverging away from the model, meaning  ES/S&P-500 are considered to be over-valued right now as compared to a cornucopia of risk assets that make up the model.

 Commodities were a clear beneficiary yesterday of the strange overnight ramp in ES which remains unexplained and in my opinion was a manipulation of ES during the low volume hours. Yesterday I searched all day for any correlation of news that would have justified the move, which even looked suspicious on the chart itself. As explained in an earlier post, the financial media was quick to attribute it to Aloca's outlook for aluminum demand, that seems to have been shot down with Alcoa closing near unchanged yesterday at .11%. Today we can see commodities diverging downward from the S&P.

 Longer term you can see how the strong October rally saw commodities in line with the S&P as they should be on a strong risk on move which I would say the October rally was, since then however, they have diverged significantly to the downside and leave equities stretched pretty far at the end of a very narrow limb. The idea here as with most of these models is a reversion to the mean, which would mean either commodities and almost every other asset class that is also showing a negative correlation would have to rise or more likely, equities which are largely off on their own and without the support of the larger credit market would have to fall.

 Rates, the Equity magnet, were in line for a short period, but once again started trending lower and faster then the S&P and are now back to levels seen before yesterday's strange pop in equities.

 Looking at a longer term hart of the same, you can see how they have moved together in tandem in what I would call a confirmed or believable trend, they even led the S&P in the green area and the S&P has caught up to that high in rates, however one again the longer term picture shows rates selling off while the S&P trades pretty close to the range that has persisted for several weeks. This time in equities could certainly be used to sell/sell short by institutional money, the environment is right and the other risk assets suggest that is what is happening.

 In the VERY near term, the Euro had been in line with the market the last couple of days, but has now fallen sharply lower from the normal legacy arbitrage correlation between FX and equities, again suggesting a reversion to the mean in equities.

 Even just slightly longer term charts show how bad the disconnect is.

Finally, thus far today financials are showing more momentum then the market as a whole, we'll see if that can hold up. I'll also be looking in to each of the main sectors.