No man's land

Yesterday worked out pretty much as planned...that is, until Europe went home.  European equities gapped lower on the open, drifted back to unchanged, and then seemed as unsure about what to do from there as Macro Man when he made his little prediction.  US equities had no such issues, however;  from roughly unchanged on the European close, they were frog-marched up in a straight line, presumably by algos on some sort of buy program.

The rally left the Spooz chart looking rather interesting; a bounce off of the 50-day MA and a bullish engulfing candle would normally be a pretty healthy buy signal, but wouldn't you just know futures are left knocking on the door of the 200-day MA, so it's kind of hard to be enthused.  That the rally has occurred in the midst of a little fixed income squeeze is telling; one wonders whether stocks would be so resilient if rates started selling off again.   From Macro Man's perch we're kind of in no man's land; the tactical picture isn't particularly compelling in either direction, which suggests not running a lot of tactical risk at the current time and price.

As commenter abee crombie has pointed out, high yield may well be something of a canary in a coal mine.  Quite an interesting dynamic has played out over the past six weeks or so, as  punters bought HYG aggressively into the rally from early October to the beginning of this month...but sold very little even as the ETF dumped.   The entire 20% increase in shares outstanding occurred at prices at or above current levels; with little time to earn any carry on the position, one would have to think there will be considerable amount of headwind to the topside as some dip-buyers try to get out for a scrtatch.   How high yield manages to cope with that could help shape sentiment for broader markets;  given that a shelf of supply is likely, the natural inclination is to look for opportunities to re-establish shorts in risky assets.

Although oil perked up a bit yesterday, commodities are also not exactly screaming that Goldilocks is back.   Copper, for example, is now at its lowest price since the summer of 2009, though that says more about China and the dollar than it does about the economic cycle.   Then again, even stripping those effects out in some way still leaves copper looking weak; copper in Aussie dollar terms is at 5 year lows.  That having been said, sometimes looking at assets or commodities denominated in other currencies turns up interesting technical set-ups; the chart of copper in AUD terms is indeed at 5 year lows, but at levels that have produced vehement bounces the last three times they've been reached.  As a purely tactical trade, buying copper and selling an equivalent amount of AUD looks like pretty spectacular risk-reward.

Finally, yesterday represented something of a mini-milestone for the Eurozone.   The final reading for October CPI came in at +0.1% y/y, slightly higher than the consensus of 0.0%.   This was the first time that the final reading of CPI surprised to the upside since August of 2014.  Not that the euro cared, of course; it's making fresh lows on its merry march towards parity.  At some point, however, it's going to be worth taking the other side of QE/deflation bets in Europe.  Intrepid punters may already be tempted by something like paying 2y2y as a cheeky punt; as we approach QE day in Europe, however, it will be worth diving deeper to look for more structural opportunities offering a solid risk/reward set-up.