Market Thoughts : Rattling and Humming Away

A wee correction we saw in the S&P last night and a small global pullback that most people will see as a buying opportunity today as we open the US earnings season with good results out of Alcoa at 4 am this morning, delivering an EPS number of $0.18 vs market expectations of $0.124.

S&P 500 daily

My main takeaway from the minor downward move in the S&P 500 over the past 2 days has been the synchrony market has displayed with the EUR which implies the USD DXY index, closely followed by the AUD, Gold and JPY, in that order. Bond yields did not exhibit a similar trend and the VIX too, did not display any out of the ordinary change in correlation, remaining at its -0.9 degree of significance over a 1 month and 6 month period which still gives it the strongest correlation with the S&P.

S&P correlations

For ease of comparison, I used the 1 month correlations and compared them to the 1 week correlation to gauge the relative change.

This suggests the following.

1. The bond markets have become entrenched and the macro theme remains intact.

2. The pull back in stocks is expected and will be tolerated.

3.  The first line of defense against the stock market pullback will be the VIX and currencies and Gold.

It would appear that it does not matter even if the ECB cuts rates to -1 or -2%, there is no alternative to the immediate trade hedge in the S&P which is the VIX and the DXY index (which is 57.6% EUR, 13.6% JPY and 11.0% GBP).

The coast looks clear tonight for a rebound in the stock markets as the market celebrates Alcoa’s earnings with no big earnings report till next week (Wells Fargo this Friday) and we also have the Jun FOMC minutes which are usually, more often than not, market friendly.

And the coast is looking clearer for the 2000 hurdle in S&P next week !

Will we see some UN-correlations then, starting with the EUR ? (Which is probably not today because hedge funds have gone long and they will be pushing it higher for quick gains ahead of the almost certainly dovish FOMC minutes)


Some reports are calling this the last leg of the bull run.

But as far as I am concerned, we are still hesitant skeptics like I said in May, waiting for a dip to buy.

And it is best to sit this one out as I noted 2 days ago because the markets have become too perfectly engineered to hope for the last leg of profit from the last gasp of a fish out of water.


Chart of the S&P vs  US 10Y bond yields.