May 13th, 2013
in Gary's blogging
Midday Market Commentary For 05-13-2013
The SP500 Closed its gap but the DOW is lagging. The small caps have registered new highs closing the gaps that were made this morning. This is a market where sitting on your hands might not be a bad idea. We are at the crossroads where the markets could go in either direction.
I believe the time to look for another strategy has come.
There is a mathematical term used to describe a time series' propensity to mean-revert or not. Autocorrelation measures the tendency for today's price direction to be in the same direction as yesterday's.
In a period of negative autocorrelation (such as today) when the market sells off one day it is much more likely to rebound the next. As Artemis Capital's Chris Cole notes, the current level of negative auto-correlation (often associated with positive for 'buy-the-dip' strategies in an upward trending market) has never been higher.
Mean reversion and negative autocorrelations are one reason why many pure 'portfolio insurance' strategies are struggling with losses. If you are constantly shorting volatility this trend toward powerful mean reversion is your best friend.
However, empirically, this high mean reversion is unsustainable; the potential for mean reversion regimes to ‘shift’ is driven by increasing leverage and interconnectedness in the system.
The DOW at 12:15 is at 15102 down 16 or -0.11%.
The SP500 is at 1636 up 2 or 0.13%.
SPY is at 163.76 up 0.35 or 0.21%.
The $RUT is at 976.18 up 1 or 0.10%.
NASDAQ is at 3447 up 10 or 0.30%.
NASDAQ 100 is at 2989 up 8 or 0.27%.
The longer trend is up, the past months trend is bullish, the past 5 sessions have been bullish and the current bias is positive.
WTI oil is trading between 95.95 and 94.53 today. The session bias is generally bearish with wide swings and is currently trading up at 95.37.
Brent crude is trading between 103.84 and 102.11 today. The session bias is bearish and is currently trading up at 103.19.
Gold fell from 1437.91 earlier to 1425.87 and is currently trading up at 1434.95.
Dr. Copper is at 3.365 rising from 3.337 earlier.
The US dollar is trading between 83.45 and 83.16 and is currently trading down at 83.32, the bias is currently sideways.
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Written by Gary