We Have 2 NEW POWERFUL INDICATORS

I hope this demonstrates the reliability of these indicators as both are based on longstanding facts about the market, but I guarantee that few other traders are looking at these, "To make money in the market, you must see what the crowd missed"


I hope these become even more useful and tie in to our already very unique 3C analysis and I hope this demonstration helps you to trust in these indicators because what it all boils down to is you have to be willing to go short even when the market looks strong and go long even when the market looks weak, waiting for the market to confirm is just loosing profits and likely putting you in a trade that is about to fail. You have to be comfortable doing the opposite of the herd of sheep if you want to break free from the herd.

I will continue to create and develop these indicators, but you must be able to trust and trade them.

The first is based on the longstanding arbitrage between the dollar and the market (they have an inverse relationship and the Euro is 50% of the Dollar Index, so it makes an ideal study) which has stood the test of time except when there are large policy interventions, but we are aware of those as they happen and know when to use the indicator and when to back off. This, unlike the credit indicator that I started creating and featured last night, is the basis for the indicator I will create, but even like this, the information is able to be used to trade from and tells us something about the market now.

 On a 5 min chart, FXE-the Euro Index ETF is in red and compared to the SPY in green. These should trade together like they do at the left side of the chart, when the SPY trades higher then FXE, we know there's a dislocation in the market and the highest probability is that the SPY will revert to the mean or fall to move in line with the FXE/Euro's trade. In white you can see 2 such dislocations when the SPY traded above the Euro, the next day the SPY fell in the first example, the second example the SPY fell a lot and "appears" to have reverted to the mean.

However, looking at a longer term 60 min chart, we can see the SPY is still very rich to the Euro and is due for a fall to revert to the mean. Clearly the SPY has traded sideways in the white box while the Euro has traded down. A reversion or a drop in the SPY seems to be a very high probability -once again, to the left you can see when they traded nearly in lockstep with each other. This has bearish implications for the market.

 As professional institutional traders say, "Credit leads, equities follow". Well luckily, an ETF, HYG was recently created allowing us to track credit, this is what  the indicator you saw last night is based on. Once again on a 5 min short term chart, the dislocation between the SPY in green and HYG/credit in red, is clear in the white boxes and to the left you can see how they "usually" trade in near perfect unison. The result of the first dislocation, a drop in the SPY overnight. The result of the second, a major drop yesterday and they seem to be back in lockstep, that is until we look at the bigger picture again.

Here's an hourly chart, in yellow credit is leading the SPY and the SPY makes a gap move higher within a few days, then the SPY in white to the left is dislocated and trading higher then credit, the result, several days of nasty drops in the SPY.  In the middle white box, again the SPY is rich to credit, the next few days it drops. Now, even though we have seen several days of trending down, the SPY is still rich to credit, implying we will see more downside.

Like I said, I started the rough outline of the credit indicator yesterday and you saw it in last night's post, I will continue to refine and test it and I will create the FX indicator as well. However, for the time being, when I show you these dislocations, such as Friday when I said, "Use this strength in the market to go short", it is up to you to trust what you see, even when it is hard to trade against the market, remember the market is there to deceive you.

Since Friday, you could have made 10% in SPXU.