Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While we await the ECB press conference I thought I’d take a quick spin through various risk markets pre magic wand waving measures. In equities we have a had a huge divergence between the S&P 500 (large caps) and Russell 2000 (small caps). A week ago at this time the S&P 500 was in a precarious position and down 0.4% in premarket. Then Draghi’s comments hit the wires premarket and markets went ballistic to the upside last Thursday and Friday. The S&P 500 has consolidated those gains in good fashion without giving that much back. It remains in the ascending channel it has been running in since early June, and in the upper third of it. S&P 1400ish would take the index to the top end of the channel – any euphoria from Mr. Draghi could do that quickly. 
Contrast that to the Russell 2000 which has given back the ENTIRE Thursday/Friday rally. While we saw this big cap/small cap divergence throughout March and April it is rare in any one day to see such a huge variance as we saw yesterday (1.7%!) between the 2 indexes. 
The NASDAQ is somewhere in between – not as strong as the S&P 500 but certainly not nearly as weak as the R2K. 
Now let’s take a spin on some other widely followed “risk on”/”risk off” markets U.S. dollar? The lack of action yesterday by the Fed supported the dollar and it is basing after a big move and still looks quite bullish. Now we need not have a weak dollar for all other assets to rally but it has been the relationship of late. 
U.S. bonds? (I’ll use TLT ETF as an example) Not much different then the dollar – still a bullish chart pattern, a small pullback and now basing. 
Oil? Relatively bullish here as well which is a positive for the bulls. 
So overall we certainly have a mixed bag. If you take the Russell 2000 in a vacuum the entire Draghi move evaporated; but if you look at the big caps we see a holding pattern after a quick spike. Bulls would definitely like to see bonds break down – the U.S. dollar would help but perhaps not as important to fall apart. And an oil rally would be another sign of “risk on”.
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