Something doesn't add up here... (and rumors of heavy institutional selling is not helping)
Breadth is weak...
[7]
and flows are diverging...
[8]
The average Russell 2000 stock is -20% under its 52 week high
And High Yield credit is flashing bright red...
[9]
As Barclays Phil Solarz warns,
One of the things that sticks in my mind from 2007 (and I am NOT suggesting a 2007/2008 repeat here) is the fact that the credit markets moved before equity markets....and not just once, but three or four times through 2007 and 2008.
I recall looking at charts like the attached and thinking "why has this correlation broken down?"
Inevitably, the credit markets would be right, and the equity market would eventually catch up and re-establish the correlation.
The chart above shows (the inverse of) the junk-less-10 year spread vs the S&P. The tight correlation of the past 12 months (and actually, the last 3 years) has broken down this month.
Charts: JC O'Hara at FBN Securities, @Not_Jim_Cramer, Barclays
