The rate differentials still point to US assets being more attractive compared with Japanese and European assets.
US$ strength continues, which is good for Japanese pension funds that need to escape Japanese Nirp. Of course, the G20 has informed Japan and China that they cannot continue gaining competitive advantage through currency debasement. But what other realistic options do these countries have to fight deflation?
Income generating US assets are still bought.
The VIX is still under pressure.
We can see below that the 20DMF is attracting money again and will probably cover its short stance and revert to a cash position.
Non S&P500 stocks have also attracted money. These are the most shorted stocks and hence, this positive Money Flow could simply indicate options expiration based short-covering.
Now, to be accurate, it is evident that the Mammoth Sector is not attracting much money here. But it is not under strong selling pressure either.
Oil still looks strong, even with an underlying strong US$. This is pushing money back into the energy sector.
We cannot say that this move is entirely due to options-based short-covering: even giant XOM is attracting good money. You can see below that LEV pushed higher by "1000" in the past two days. Since the scale is ,000 based, this figure tells us that the buy/sell equilibrium was tilting by 1000 times 1000 shares times $90 = 90 Millions US$ that moved in XOM.
Conclusions:
As far as I can see, there is no evidence that money is leaving the markets. There is no evidence of an imminent sharp pullback.
If you look all over the internet, there are only three main arguments that support a pullback:
- Deteriorating earnings
- A coming rate hike
- An increase in fund redemptions
There are also compelling arguments that tell us "Not yet:"
- Refinancing of distressed energy debt and Tesla's 2B$ issue: underwriters (all the TBTF) would not want a pullback until placements are over.
- What about stock buyback windows being reopened after the earnings season?
- What about individuals and corporations rushing to raise or refinance debt before rates are raised?
These arguments are no proof and are difficult to trade on.
I believe that it is best to keep "evidence based" trading.
The main arguments that point to a continuation of the bounce are rate differentials, strong US$, weak VIX and positive MF.
The main risk for a pullback is something that is not priced in: a major bank failure, a major Chinese devaluation, a major terrorist attack in London or New York, a major earthquake or tsunami in California, etc.
My opinion is that this market will remain range bound and that we need to concentrate on trading pockets of strength against pockets of weakness.
