TACTICAL SUPPORT IN PLACE: CHANGING OUR MARKET DIRECTION TO BUY

On May 11th, our statistical arbitrage model reiterated its sell signal for the S&P500 index. While the market behaved parallel to our expectations on Friday and so far today (Monday 14th), our most current statistical signals actually start to indicate a bounceback from current levels, mainly 1,340, for the S&P500 index:

• Statistical arbitrage is now starting to signal buy. We are changing our recent view from further sell-off to buy as our mathematical model started to suggest that some major statistical indicators in our proprietery model do not show enough widening for further downwards moves. Additionally, our model currently does not signal enough dispersion in correlation matrixes, a typical behavior in times of panic and big sell-offs.
• Technically, for the S&P500 index, levels around 1,340 seem to be holding pretty well as a key, interim support level. While we earlier predicted that 1,292 is a level we might likely see during the second half of May, current market behavior actually indicates an upwards move.

Given the critical and continuously updated news flow coming from the EU (e.g., Greece crisis) and increased volatility in markets fueled by sharp decreases in the EUR/USD exchange rate, our expectations for an upward bounce back may again be a short-lived. So, we recommend our clients to remain very cautious when entering the market.

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