If you listen to the market news this morning, you'll hear that the American market was "up". Yes - the Dow Jones Industrial Average was "up" +0.43%. The talking heads might also tell you that the S&P500 was "up" +0.14%. Probably they won't comment on the disparity between those two figures. The broad market (S&P500) was relatively flat while the big blue chips were up solidly. That doesn't feel like the Appetite for Risk was particularly strong.Further, the Russell 2000 (small caps) were absolutely flat at 0.00%. No Appetite for Risk there.
Does this matter? Certainly. Have a look at the chart above. It is a ratio chart of the Dow and the Russell 2000. From September to late December - this chart shows that relatively the Dow did worse than the Russell 2000. That's what I want to see to sustain a bull market. Risk Appetite. Punters pushing the broad market up.
Since late December, however, the ratio has been going sideways; plus, the Indicators have formed positive divergences from the charts. This means that momentum has slowed and the market may reverse to the upside.
Risk Aversion is entering the market. If the punters are Risk Averse, it won't take much of a catalyst to send the general market into reverse - i.e., downwards.
Of course, there's nothing to say that the Appetite for Risk can't re-enter the market and the Dow will go on up and up to the heavens. But - the probabilities are now weighing to the down side.
One last point about today's action. The Vix (the Volatility Index, aka the FEAR Index) went up today. Volatility going up on an "up" day is not a good sign. Punters were getting nervous today. Maybe it was a knee tremble about the Apple report coming out after market. Whatever. Fear went up today.
When the Dow and the Vix both rise on the same day, it is usually followed by a "down" day the next day. The Australian market has an uncanny ability to pre-empt moves in the American market. Today here in Australia could get a little rocky.
We shall see.
Good luck
Red.
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