With stocks in slow motion, traders and fund managers are finding big action in the commodity and currency markets.
The may be right at all-time highs, but it didn't move more than 0.6 percent on any day last week. That pales in comparison to the action in gold and crude oil, which traded in 4 percent and 2.5 percent ranges, respectively, on Friday alone.
It is this sort of rocky action that has led the volatility indexes of gold and oil to trade at elevated levels, even as S&P implied volatility has dropped to the lowest levels since September, after October's quick flush and rebound.
This isn't the consequence of more caffeine being served in the commodities trading pits. Since July, the U.S. dollar has been surging against other currencies, and the move has only been exacerbated by the announcement of further asset purchases from the Bank of Japan, and dovish words from the European Central Bank. Incidentally, this has also increased implied volatility in the dollar, with options on the PowerShares Dollar ETF now pricing in annualized volatility of 9 percent, which is up from 5 percent in the beginning of September.
The dollar surge, along with other factors, has put pressure on oil and gold. Commodities tend to enjoy an inverse relationship with the U.S. dollar, given that as each dollar becomes more valuable, it takes fewer of those dollars to buy an ounce of gold or a barrel of oil.
"The biggest story over the last few months have been the dollar strength as central bank policies have diverged, so we should expect commodities that are influenced by the dollar to be pushed around," said Jim Iuorio of TJM Institutional Services.
Meanwhile, that currency move has not spiked S&P volatility, given that U.S. stocks aren't highly dependent on tick for tick moves of the dollar.
Instead, "people are still flocking to stocks based on the simple fact that there's nothing left to buy," Iuorio added.
That certainly comports with the laconic action seen in equities in recent sessions. As ConvergEx Group strategist Nicholas Colas put it in a recent note, the proper animal to represent the current rally is not a bull, but "a nice fluffy sheep—not at all scary, but also not very inspiring."
The shifting action has not escaped the eyes of fund managers.
As macro advisor Neil Azous of Rareview Macro wrote in a recent note: "It is important to note that a lot of professionals have deployed more risk to currencies and new risk to commodities. So their ability to add a long position in equities is now lower and no one wants to buy these highs."
Of course, the bulk of the moves may have already been made. Technician Todd Gordon has been looking for WTI crude oil to hit $75 per barrel, and gold to hit $1,140. Last week, crude came within 84 cents of that level and gold futures traded $10 below that region, leading him to cover his short bets.
"I'm kind of afraid this dollar strength/commodity selloff might be over in the near-term," he said, adding: "But I hope it's not over. My clients have been pretty happy with me lately."