Risk Layout Update

Today is a good day to demonstrate the divergences between some of the risk indicators I have been showing the last few days that have been putting out red flags and the concept of reversion to the mean.

 First commodities vs the SPX (SPX green), the last 2 days commodities have diverged from the SPX, today on a near term chart you can see how the SPX has nearly reverted to commodities or to the mean.

 Longer term there's still a larger divergence warning longer term.

 Yet even longer, since the start of the rally, there's a huge dislocation between the 2 risk assets groups.

 Remember yesterday I said, "Yields are like a magnet for equities".  The last 2 days yields have been diverging from the SPX and today they have reverted to the short term mean.

 A bit longer term and there's still a large dislocation.

 Even longer term going in to 2011, look at how Yields diverged from the market, soon after a 20% plunge in the market and a reversion to the mean, however now the dislocation is much bigger.

 The $AUD as a leading indicator  has been warning the last two days and today the SPX reverts toward the short term mean.


 A bit longer term and the divergence is still wide.

 You can see how dollar strength also effected the market

As well as Yen strength which makes the carry trade more expensive.