The Euro Currency Trust (FXE) and the S&P 500 were positively correlated throughout most of 2011. This positive correlation was especially strong the last six months as the Correlation Coefficient spent most of its time in positive territory. This positive relationship turned negative in 2012. Chart shows the Euro Currency Trust opening above 130 the first trading day of the year and moving below 127 today. FXE is down almost 2% year-to-date. In contrast to the Euro, the S&P 500 is up around 2.5% year-to-date. As a result of these divergent moves, the Correlation Coefficient (FXE,$SPX) moved below -.50 for the first time since June. Prior bouts of negative correlation occurred in February-March and June.
Either something gives or the market dynamics are changing. Chart shows the S&P 500 moving above its 200-day moving average to start the year. The ability to break this key moving average when the Euro is moving lower shows strength. Stocks are rallying in the face of a prior adversity. Put another way, stocks are going up on bad news. The October trendline and rising 50-day SMA mark first support around 1240.
UTILITIES AND CONSUMER STAPLES SECTORS SHUNNED IN 2012... The S&P Sector Market Carpet below shows average performance for the stocks in the nine sectors. The industrials sector is leading with an average gain of 3.0%. This means the average stock in the industrials sector is up 3% in the last seven trading days. The consumer discretionary, technology, finance and materials sectors are also showing good gains. These sectors with strongest gains have the greenest boxes. While six of the nine sectors show strength in 2012, the average stock is down in three of the nine sectors. Notice that the utilities and energy sectors are pink-red because the average stock is down 1.2%. The average stock in the consumer staples sector is also down (-.5% on average). There is a clear move away from two defensive sectors in 2012 (utilities and consumer staples). On the flip side, money is moving into the offensive sectors, such as finance, technology, consumer discretionary and industrials. The appetite for risk has been healthy so far in 2012