Enis’s Macro Wrap – Too Far, Too Fast, Taking Off the Bullish Hat

by Enis November 26, 2012 7:33 am • Commentary

I wrote in my November 15th Macro Wrap that it was “about time to get bullish” with my main reasons for the switch in stance as follows:


…I’m seeing signs from other markets that the risk-off selling might be close to done.


  1. Global equity markets, which almost all underperformed the U.S. market over the past 2 years, have been acting much better on the recent selloff.  The Euro Stoxx 50 index is still above its 100 and 200 day ma, and the Hang Seng is still above its 50 day ma
  2. Industrial commodities, specifically oil and copper, are basically flat in the past 2 weeks, while stocks have sold off.  Those 2 commodities in particular signaled coming risk-off action throughout October, and they might be leading stocks in putting in a bottom.
  3. Treasury bonds and the dollar have basically been flat this week, after showing risk-off signals during last week’s selloff.

Fast forward to today, and the SPX index is up almost 5% in a little more than a week.  In the meantime, inter-market and cross-market indicators don’t look nearly as bullish.

  1. Global equity markets have bounced as well, which I had expected, but most have stalled near prior resistance levels
  2. The Nasdaq and Russell 2000 are both still below their 200 day ma’s, and they haven’t rallied much on a relative basis to the SPX even though they sold off more
  3. Oil and copper have not bounced much, even though they had stopped going down before equity markets.
  4. Treasury bonds are down less than 2% from their highs.  The one positive for stocks is that the dollar has been quite weak.

Put it all together, and I feel much less comfortable about bullish bets with the SPX index above 1400.  Of course, the rally happened so quickly that I was not able to initiate as many bullish trades as I had hoped, as I was waiting for more basing from the broader market.  But given the quick rally and lack of basing, the market feels vulnerable to further selling from these levels.  Maybe no Santa Claus rally after all.

Markets overnight:

  • Asia closed mixed, with Japan ending up only 0.25% after being up more than 1% as the BOJ confirmed plans for more monetary stimulus.  Seemed like a case of buy the rumor, sell the news (same in the yen, which rallied after the news).
  • Europe has traded in the red all session, now at the lows, down about 0.75%.  SPX futures have traded red as well, now indicating a down 0.5% open, though still holding above the important 1400 level in SPX cash
  • The dollar has still been the weakest market despite risk-off trading, trading close to flat.  Treasury bonds are higher, and commodities are close to flat