From the desk of Willie Delwiche.
- Risk On appetite missing from recent rally
- Bond yield momentum waning as financial stress remains low
- Intact dollar uptrend and rollover in copper/gold ratio are equity market obstacles
In the wake of the breadth and momentum thrusts seen over the first half of August, the market seems to be arguing that the path of least resistance is higher as we move into 2023. The macro backdrop almost guarantees that the way forward will be strewn with rocks and roots. The question is whether the obstacles will be significant enough to derail or delay the journey. We will look at several macro-related indicators that could help us anticipate a more or less treacherous road ahead.
Before we get to that, even in the wake of the recent thrusts there is room for further improvement from a market perspective. The turn higher in new highs versus new lows remains tenuous and a robust appetite for risk has been elusive. This Risk Off – Risk On Range-O-Meter compares where the ratios between the various risk pairs currently trade – relative to their 52-week range (blue diamonds) and relative to their 13-week range (gray triangles). For 18 of the 20 pairs, the ratios are closer to their Risk On extreme on a 13-week basis than on a 52-week basis. This points to an improving risk appetite. But over both their 52-week range and 13-week range, a majority remain closer to their Risk Off extreme than Risk On extreme. That is not evidence of Risk On leadership and strength.