Wednesday, November 30, 2016

Yield Curve Drops the Market...11.30.16

XLE (oil) up 6% intraday on OPEC supply cuts while bonds and utilities break support and blow through stops. And some folks saw it coming.  Needless to say this is likely the start of something rather than the finish.  As we surmised yesterday weakness in today's and tomorrow markets can be seen as a paradigm shift from momentum to mean reversion and below are the current (today's close)
metrics for the M11 market model in both modes.
Note that the mean reversion model has a better win rate although returns are more subdued.
Below the M11 models is the current MO2 pairs trading chart package for SPY vs SH (SPY inverse)
We can clearly see that the skew has now come down to zero and the trend for both inputs both inputs has been crossed by the risk management stop.
The surprise is that VIX hasn't risen more today (+1.6%) and tomorrow's action is critical. 

Click once on chart below to enlarge