Last week’s decline in equities could have been caused by a number of catalysts, but I do think there’s a fairly clear trend of investors wanting to take at least some risk off the table here. The VIX also remains at elevated levels, but some unusual behavior in the commodities space may be flashing some real warning signs here.
Despite last week’s sharp declines and higher volatility, just the short-term Treasuries signal moves to risk-off. The other three signals, which had been building up strength for weeks, remain firmly in the risk-on camp suggesting that some of the longer-term uptrends remain intact. I believe this is more of a head fake that needs to be confirmed by other asset classes before putting too much weight into.
No surprises this week as all four risk signals remain firmly in the risk-on camp. Last week’s big gains in large-cap stocks are being confirmed by strength in lumber prices and continued underperformance from utilities stocks.