Yesterday on the close, as I added shorts in the S&P 500 futures, my risk averse measure fell into negative territory - more specifically, risk taking on balance broke out yesterday. Shorting on the turn in one of these indicators is not always a bad thing as the market will normally correct a bit before resuming the drive higher. As I write this am though, the market is ignoring the correction mindset as the futures rise almost 10 points. So with the risk taking measure on balance now rising, what does this mean?
Well, first and foremost, the market very well drive well beyond the highs from this spring. Using a simple range projection, 1250 would not be unreasonable. The support for such will be the declining interest in risk averse assets though on balance, I think gold continues to move upward. As I mentioned yesterday, I am firmly in the higher rate camp supported by a turn in the money momentum, the breakout in the CRB and the breakdown in the long bond. With the break from 134 yesterday, 132 does not look unreasonable. Further, as I showed yesterday, the bond did not make a lower low in yields which argues now we should see a higher high.
So in summary, I am probably on the wrong side of the trade in the long term. A correction though would not surprise. Also and this is a big also, if 1150 is taken out in cash, the 1250 level comes off the table. That would imply a false breakout and a return to the bottom would not be unreasonable. Based on the available evidence and all the bullish charts I have shown in the past few months, I put a low probability on such a breakdown occurring.
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