Not too far : As the crow flies

S&P 500

If flat tops bring market drop, we have a big one at our hands. S&P 500 is simply trading waters since March 1998. Today it stands exactly the same point it first crossed on the upside in March 1998. Nearly 12 years and nothing. And as far as current financial year go - nothing. This is the last quarter for S&P 500 to set a direction for the year as a whole and if prevailing 9 months have anything to go by, there is no clear trend still. The volatility has been grinding down progressively and the implied correlations across asset classes are slowly approaching 100%. The underlying risk in the markets is building up and severe price moves can occur to adjust for the ground realities. For a breakout trader, this is a point of extreme patience. Bigger the range, greater the breakout as they say. When it could happen, no one knows but it would certainly be a big one.

JPY has been rising steadily, even in the face of threat of interventions by BOJ. USD is also looking to breakout upwards after a recent pullback. These point to the continual deleveraging going on and corresponding destruction of outstanding debt. The US national debt may be increasing but the overall debt (govt + private) is decreasing fast and that is deflationary and constant source of worry. Commodity prices have started moving up for grains, softs and metals bur crude oil and energy sector looks poised for a correction down.

I am closely watching the foreign exchange markets for emerging signs about trend which is likely to break the range bound trades in other markets. If USD, JPY and CHF can continue to attract bids, it would be bullish for GOLD and Bonds but bearish for equities and consumption linked commodities. Meanwhile, waiting and waiting…