Stocktake

Extended markets:The latest instalment in the Greek saga caused markets to tank on Tuesday. Greek markets suffered their biggest falls since October 2008, with international indices off by between 2 and 6 per cent.

They were due a breather anyway, with soaring markets in France, Germany, Italy, Russia, Australia and China all rising by a quarter or more in the previous weeks. US data is equally eye- popping. The percentage of stocks trading above their 50-day moving average reached 94 per cent, a reading registered just once in the last 10 years.

The financial sector was most overbought, with 100 per cent of bank stocks trading above their 50-day average and the overall sector three standard deviations above the same level.

Not only were all 10 SP 500 sectors technically overbought (at least one standard deviation above their 50-day average), eight sectors were between two and three standard deviations above their 50-day average. No one rings a bell when the market peaks, but extremely extended markets are liable to pull back.

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Market relief:Equity market reaction to the recent euro zone deal was euphoric but bond markets were wary even before George Papandreou's referendum announcement.

Italian bond yields soon rose to their highest level since the ECB started buying its debt in August and 10-year yield spreads over Germany exceeded 4.5 per cent. Spreads on French bonds are more than 1.2 per cent above Germany’s – the highest since the euro was formed – while Portuguese debt worries continue to mount.

How did equity markets miss the obvious tensions? Any deal was a relief to markets “obsessed by the lack of leadership”, noted George Soros, who presciently cautioned that this relief would last “from one day to three months”. That’s echoed by Prof Kenneth Rogoff, the foremost expert on banking and sovereign debt crises.

“The markets are cheered that they’re still alive,” he cautioned at the time, but further defaults beyond Greece would follow. As for Greece, there was an 80 per cent chance it would leave the euro, he added.

All or nothing: We’ve been saying for months now that this is not a stock picker’s market, with stocks rising or falling in unison. That’s borne out by Bespoke Investment Group data which found that “all or nothing” days – that is, when at least 400 of the SP 500 stocks track the index’s daily move – has now exceeded its 2008 record.

There have been 55 such days in 2011, above 2008’s figure of 52, with 35 of them occurring since August. Incredibly, that’s more than the total number of all or nothing days seen between 1990 and 2001, Bespoke notes.

Correlation always rises in times of crisis. The huge growth of ETFs is compounding the situation, making for truly historic market behaviour.