Correctamundo

February has not exactly gotten off to a wonderful start for a number of consensus positions in macro-land.  The euro, for example, has strayed back to the neighbourhood prevailing around the time of the ECB announcement.....

...though it must be said that the attention paid to this development in some quarters is hardly commensurate with what has, after all, been a very modest correction given the magnitude of the move.    Those prescient (or at least brave) enough to have bought USD/CHF after the SNB carnage and held onto it remain close to their high water mark on the trade.

A  roughly 20% rally in the price of oil over the span of 72 hours would ordinarily have the klaxons blaring.....these days, however, it almost literally barely registers on the chart.   Of course, anyone unlucky enough to have allocated into trend followers at the end of January will no doubt be feeling the pain.

Perhaps not coincidentally, high yield has continued its drift higher, with HYG registering its highest daily price close since the end of November.  Your author has difficulty in believing that equities can meaningfully top without substantial and sustained weakness in credit as a predecessor.

That having been said, there are times when the near-term outlook for stocks appears somewhat less rosy.  While a number of indicators, particularly those capturing the financial liquidity environment, continue to flash "all systems go", others- such as those driven by earnings growth- may be starting to flicker somewhat amber.  

While Macro Man's "predicted 12 month return" model continues to love love love the SPX, another model that he runs in conjunction with it is less upbeat.  He has assembled a simple 5 factor scorecard (don't ask what the factors are, 'cause he ain't telling), with each factor generating a +1/-1 signal.  

Since the spring of 2010, the scorecard has been rampantly bullish the SPX, registering its maximum signal for every month but one (US downgrade fever in the summer of 2011) over that period.  Actually, make that every month but two- when he ran the model at the end of January, one of the factors had flipped negative.

Although a scorecard reading of 3 continues to warrant equity length, Macro Man's research suggests that positioning should be less aggressive than with a maximum signal.  Whether this is a prelude to something bigger or merely a temporary blip or correction remains to be seen; it's often been said that one should not pre-empt or predict a model's evolution, and in Macro Man's experience that is correctamundo.