• 515 days Will The ECB Continue To Hike Rates?
  • 516 days Forbes: Aramco Remains Largest Company In The Middle East
  • 517 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 917 days Could Crypto Overtake Traditional Investment?
  • 922 days Americans Still Quitting Jobs At Record Pace
  • 924 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 927 days Is The Dollar Too Strong?
  • 927 days Big Tech Disappoints Investors on Earnings Calls
  • 928 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 930 days China Is Quietly Trying To Distance Itself From Russia
  • 930 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 934 days Crypto Investors Won Big In 2021
  • 934 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 935 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 937 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 938 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 941 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 942 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 942 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 944 days Are NFTs About To Take Over Gaming?
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Tony Pallotta

Tony Pallotta

ReThink-Markets

ReThink Market Advisors is a market advisory firm for institutional and retail clients. We provide a non-biased, non-emotional view of where markets are going in…

Contact Author

  1. Home
  2. Markets
  3. Other

Market Outlook

For the week ending January 18, 2013, the SPX was up 0.9%, the Russell small caps were up 1.4% and the COMP was up 0.3%.

Tech is starting to underperform large caps. There were also a few instances during the week where small caps also underperformed large caps though on the week RUT did outperform.

The model remains flat waiting for a test of support for confirmation as to whether this is the start of a new uptrend. Price always pulls back into support and that is when a trend is confirmed. It is not advised that you chase this market. Wait for a test of support for confirmation.

There are either buyers or there are not. It's really that simple. There is no sense trying to speculate beyond that test. It will come. Just need to be patient waiting for confirmation.

Support for next week is roughly 1460-1465 on SPX, 875-880 on RUT and 3090-3100 on COMP.

We continue to profile all JPY pairs (EUR, AUD and USD) as exhaustive. With the exception of AUD, there has now been ten consecutive up weeks on the weekly chart. Typically seven is the most you will see on any timeframe.

So probability favors a pullback next week. Not necessarily a trend reversal, but a healthy pullback into daily support. Should support fail and based on weekly and monthly profiles there is a high probability it will, then a sharp unwind of these pairs will fuel risk off in various asset classes. It is likely if that is to happen that equity will sell off last.


Asset Class Correlations

For the week ending January 18, 2013, the EUR was down 0.2%, copper was up 0.4%, 30 year yield was down 2bp and the Aussie Dollar was down 0.2%.

Copper was in a multi-week countertrend rally that was stopped out on Wednesday of this week. A test of 3.57 is probable in the coming sessions. Failure to hold that level will likely trigger short.

The dollar is close to triggering long with a sustained close above 79.95-80 and confirmed upside momentum over the coming sessions.

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. Therefore, using any of these asset classes as a directional indicator may likely produce false signals.

There is also a noticeable divergence with the 5 year Treasury break even as shown below which were up 2bp on the week.

Copper versus S&P500

30-Year Yield versus S&P500

Euro versus S&P500

5-Year Treasury Break Even versus S&P500


Sentiment

Market sentiment remains extremely complacent as viewed through the options market with the VIX at a 6 year low though implied volatility skew, averaging 120 on the week, has started to rise.

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 versus S&P500

Skew Vix ratio versus S&P500


Funds Flow

For the period ending January 10, 2013, $8.0 billion flowed in to domestic equity funds while $9.7 billion flowed in to both municipal and taxable bonds. Though there still remains a large divergence as charted below, this is the first inflow into domestic equity funds in a number of months.

For the month of December, domestic equity funds had a net outflow of $22.0 billion while bond funds had a net inflow of $9.8 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.

Domestic Equity Mutual Fund Flows versus S&P500


Bottom Line

We remain waiting for a test of support in determining future market direction. You never chase a market nor do you chase this move. At a minimum support will be tested. If that holds a new uptrend will form. If that fails, we will likely see resumption of the downtrend. There is no sense getting emotional or speculating where the market will go. Let the market show it's hand. It always does.

JPY cross pairs need to be monitored closely for any signs of an unwind. They remain highly stretched at current levels.

 

Back to homepage

Leave a comment

Leave a comment