The SP500 game continues, PIIGS spreads widen. plus a comment on Japan 10 Year yield.

In the great SP500 game, the question for me is whose side will I join, the Bulls or the Bears? - Currently, I am not committed, though I have been ever so slightly leaning towards the bulls; favouring this recent sell-off as a deep correction, though my conviction in that is very unsure, and growing more unsure by the day. - Lately the failure to hold even the smallest rebound is concerning. - I do not have line in the sand for this at the moment, though in my head I do consider the 1050 level as crucial.

A number of other markets are flashing warning signs, and the rush to the exits from risk is once again speeding up. - I have posted some charts below, which I think are worth looking at and watching. - I am going to start with the Euro Sovereign Debt Issue; fears regarding the PIIGS countries had eased over the early part of the summer, but the past couple of weeks have seen these fears grow again. The charts below, show the spread between each PIIGS country 10 year Government Bond Yield and the benchmark German 10 year Government Bond yield.

The next set of charts are some key FX markets, which have been good guides during the Risk-on v Risk-off battles of recent months and years. The top chart shows the AUDJPY, this currency pair has correlated will with moves in the SP500 in times. The second chart is the EURJPY currency pair, and the lower chart is the EURUSD. All three charts show the flight from risk this past week, though in my view they do not yet show a strong pointer as to whether this is merely a correction, or the start of something bigger. I would like however to point out the MACD on the AUDJPY and the EURJPY, the MACD appears appears to be rolling over at the zero line on both these charts, which is one development which may reflect bearish potential. Note: I do not consider this as a leading technical indicator, but something to be watched.- I have highlighted the previous time this occurred on the EURJPY at the end of April. 

The next set of charts show 10 year government bond yields for the Japan, Germany and the US. These are traditional safe havens from risk and key indicators of future growth prospects and inflation. All three yield levels have dropped like a stone in recent weeks. Japanese Government Bond yields are currently yielding 0.95%, the last time they were this low was in 2003, when they were rebounding from a low of 0.38% yield. These charts to me are very worrying, they reflect a strong flight from risk.

On the subject of Japanese Government Bonds. The yield on these is less than 1 per cent. - That is to say that you can own a chunk of government debt from a country which has a Debt to GDP ratio of close to 200%  - ( yep TWO HUNDRED PER CENT) - and get a return of 0.95% per annum for the next 10 years.  - Just for the record the Greek debt to GDP ratio is around 130% (about 2/3rds of Japans), and it is being dealt with and underwritten by the ECB.  - I am not advocating buying Greek debt, and I know there are many many reasons why Japan debt is looked upon so favourably,,,, but I am sorry,,, is that not a bubble just waiting to be popped??. --- and therein, in my opinion, is one of the reasons why smart investors the world over wish to own Gold.... --

BTW --- It is quite possible that the low yield environment may actually provide a prop for the equity markets, or they may be reflecting such dire economic conditions, that equity market eventually tumble too. I guess the next couple of weeks will provide further little clues.