From the desk of Willie Delwiche.
The weight of the evidence is neutral and we’ve been discussing how it has been and remains a messy environment for stocks. We can see this in our Risk On/Risk Off Ratio which has been consolidating for several months. What caught our attention recently is how closely this ratio has moved with Emerging Markets. When looking for evidence of whether the market is poised to break out (which some indexes suggest it is), break down (which some breadth divergences suggest is a possibility), or continue to move frustratingly sideways (which seems to be a minority view at this point), we would start with this chart. If the Risk On/Risk Off Ratio and Emerging Markets are making new highs, the cyclical is probably ready to resume. If they are moving lower, a deeper correction for stocks could be in store. While they continue to move sideways, it probably remains a “less is more” kind of market.
