Even with the market down today, CONTEXT is signaling that compared to risk assets, the market is rich to the model of where fair value for the SPX should be.
ES (S&P E-mini Futures) are trading at very high valuations today compared to the model (often the model and ES are in line), this would suggest there's a deep risk off/de-leveraging in risk assets.
Even the SPY arbitrage model shows the SPY rich to the model.
As for our indicators in Credit/Risk assets (the idea being when the market is optimistic and in a risk on mode, nearly all risk assets should be rallying and look similar to the SPX. A divergence between the two suggests that there's something not right with underlying trade as 3C and MoneyStream have been showing for a long time, longer and deeper then I have seen them ever before, which would suggest that there's a massive change going on in institutional trade while dumb money and momentum chasers follow the market higher, this is the behavior one would expect to see in a bear market rally as the break of a bear market rally is not spontaneous, but planned quite far in advance. As they say, what everyone can see and knows is not worth knowing. Remember that the market's job is to deceive the most amount of investors at any one time.
Rates which tend to pull the market toward them as you can see in this longer term chart, rates topped before the SPX, rates were much more negatively divergent at the second July test before the market fell 18% and now they are more divergent then ever.
I recently pointed out rates were making 10 year lows, they are now making lows that go back as far as my historical data can show, 1962.
Even the Euro is trending down here, some would say the correlation is broken, I think that is a short sighted view. There certainly have been times during QE1/QE2 when the correlation did not hold, but that was due to the relentless investment of nearly risk free cash that primary dealers were making in QE2 POMO operations, they invested it in stocks or anything that had some yield, but mostly in heavily weighted index components as breadth indicators have shown, during that period, the averages were advancing without the participation of a strong majority of stocks, simply done by investing in the heavily weighted stocks, which I believe was a pre-condition for the F_E_D's POMO windfall profits the banks made as the Bernanke was very eager to point out what he called the "wealth effect" in congressional testimony, specifically talking about the gains in the Russell 2000 and how that made Americans wealthier! What a bunch of garbage.
Longer term, you can see the Euro well correlated to the SPX in several periods, when it had a slight divergence (negative) during the 2011 top, it was leading and the market fell in late July. Right now there is a severe dislocation between the two, and this even after the selling of $USD denominated assets by European banks and buying Euros to repatriate captial to meet the EU ordered Bank Recapitalization.
Here again, high yield credit, a huge market and a risk market refuses for the second day to be anywhere near the SPX. Friday's closing prices are at the white trendline for each.
As for sector rotation, just about everything is UNDERPERFORMING the SPX, which is itself down on the day. Financials are notably underperforming relative to the SPX, Energy is the only one really outperforming, what is interesting though is even the defensive sectors such as Utilities in red, Healthcare, Staples and to a lesser degree, Industrials are all underperforming relative to the SPX. I would think that Utilities would be outperforming with the SPX down. Could there just be across the board de-leveraging in most all equities?
No comments:
Post a Comment