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8 Signs of Risk-Off Behavior Amid Yesterday's All-Time Market High


Risk-off behavior is growing and undeniable. Here's the proof.

The length of this document defends it well against the risk of its being read.
-- Winston Churchill

While the S&P 500 (INDEXSP:.INX) closed at yet another all-time high yesterday, risk-off behavior was prevalent.

1. Long-duration yields moved sharply lower and the 30-year bond finished higher by 0.71%, outperforming the S&P 500 (NYSEARCA:SPY) which finished higher by 0.57%. Bond yields peaked back in August and have not been confirming the recent stock market highs and improving global growth thesis.

2. Small caps (NYSEARCA:IWM) underperformed the S&P 500 by -0.31%. Small cap relative strength peaked in late September and has not confirmed the recent S&P 500 highs.

3. Crude (NYSEARCA:USO) finished sharply lower by -1.4%, closing below its 200-day moving average. Like bond yields, crude peaked back in August.

4. Gold (NYSEARCA:GLD) finished higher by almost 2%, significantly outperforming the S&P 500. Copper (NYSEARCA:JJC) underperformed gold by -0.84%.

5. Defensive sectors outperformed. The cyclical consumer discretionary sector (NYSEARCA:XLY) underperformed the defensive consumer staples sector (NYSEARCA:XLP) by 0.59%.

6. The VIX (INDEXCBOE:VIX) finished higher on the day, the second day in a row it closed higher with the S&P. The last time both closed higher for two days in a row was a day before the September short-term peak.

7. We saw reversals in a number of momentum names. The most notable was Netflix (NASDAQ:NFLX), which gapped higher at the open by over 9% and sharply reversed to finish the day down over -9%.

8. High-yield bonds (NYSEARCA:HYG) underperformed investment-grade bonds (NYSEARCA:LQD) by -0.31%. This ratio peaked in September and has yet to confirm the recent S&P 500 highs.

In a normal market environment, this type of risk-off behavior amid new highs would often precede corrections. While I know 2013 is different and the honey badger US stock market doesn't care about divergences, at the very least it should be clear that the risks are elevated here. My firm's models that are used for managing our mutual fund and separate accounts are currently in long duration bonds on risk-off behavior.

Badger on vacation, or disappeared for good?

Twitter: @pensionpartners
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No positions in stocks mentioned.

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