Market Update
The SP500 Indicator is still green, but yesterday’s flash sell in equities caught many off guard. After re-evaluating all signals, it looks like this SELL was well hidden. The explanations floated in headlines — government-shutdown angst, gold at \$4,000, yen weakness — don’t convincingly justify a broad sell-off on their own (Barron’s on shutdown & crypto risk tone, Gold > \$4,000 coverage).
Perceived Market Risk remains extraordinarily low
- VIX is still near the lower end of its 52-week range despite a small uptick (Reuters live VIX page).
- The MOVE index (Treasury vol) remains subdued in the 70s–mid-70s area recently (Yahoo Finance ^MOVE history, Investing.com MOVE history).
- Credit spreads are still tight by historical standards (ICE BofA HY OAS via FRED) (FRED: BAMLH0A0HYM2).
While still green and low, our Composite Risk Indicator is ticking up.
Sector Rotation signals caution
Defensives stayed in charge during yesterday’s session — led by Utilities and Healthcare — while small caps and Technology bore the brunt of the selling. This lines up with the recent leadership pattern where healthcare and utilities have provided most of the lift in up days (Reuters sector leadership recap). Crypto also wobbled after a surge to records, underscoring the jittery risk tone despite strong YTD gains (Barron’s).
Japan watch: yen weakness & politics
Japan remains a key macro swing factor. The yen’s slide accelerated after Sanae Takaichi won the LDP leadership, boosting equities and dimming near-term BOJ-hike bets (Reuters). Officials continue to flag concern about FX volatility, which can spill over into global risk appetite (Reuters background).
Outlook
ES 6800 remains a major resistance in our framework. Combined with October’s typical seasonal chop, this favors a sideways market with pullbacks. Recent sessions suggest larger players are using ATHs to lighten exposure — so long as this continues without panic, deeper drawdowns may be limited even if some technicals warn otherwise:
Pullbacks toward key support zones and the Daily MA20 should attract dip-buyers; daily closes below MA20 would argue for more caution and the risk of further downside.
Notes:
- Gold crossing \$4,000/oz is historically notable but, by itself, not a sufficient cause for an equity air-pocket (Guardian live, Investor’s Business Daily).
- U.S. indices recently printed new highs before the wobble, highlighting how shallow volatility still is in aggregate (Reuters wrap).