As the mainstream media gets over-run with 'buy-the-dippers' and 'healthy retracement' protagonists with the S&P down a monstrous 1.5% from its highs, it is perhaps worth noting (h/t Doug Kass) that Europe's broad equity market index is now down over 5% from it's peak two weeks ago (as is the UK's FTSE index). In yet another echo of last year's liquidity-fueled spurt-and-slump, European equity markets (along with US and European credit markets as we have already noted) are sending a warning signal that trouble may lay immediately ahead for US equities. The Euro-Stoxx index has just crossed below its 100DMA for the first time in over 4 months having dropped over 4% on the last two days. Add to this size of margin debt (as we noted earlier [4]) and the ultra-low levels of cash at equity mutual funds [5] and what is now the largest drop since the rally began (an incredible fact that we have hardly dropped more than 2% peak to trough in five months in Cembalest's sweet serenity [6]) may well mean more pain is to come.
2011's US vs Europe Equity performance...
[7]
and the current 2012 rally's performance...
[8]
Charts: Bloomberg
(h/t Doug Kass)