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Another great video Tony.
One note: If we look at the 2010-2011 rally as an analog, the AUD/USD vs SPX divergence started around January 2011, but the SPX continued to ramp higher into the spring.
Both rallies were arguably triggered by Central Bank liquidity (QE2 vs LTRO/ZIRP/Twist). I guess the takeaway is that bears have to time their trades carefully, and use the divergence not necessarily as a sure sign to enter the trade but as an early warning. Bearish trades should not be entered until there’s a confirmation of the turn. This is key during times of low volatility (VIX) since it takes a couple of stabs to turn the complacency around.
Check out this quote from SocGen. Hilarious and accurate.
“equity investors are positioned for beginning of the dawn… fixed-income investors are positioned for lights to go out completely”