While the 5 min charts of DIA, QQQ, IWM and SPY continue to look pretty good, the Risk Asset Layout doesn't look as good as I had hoped, there are several possibilities, 1) they don't look great right now as the market on the day doesn't look great, 2) they don't look great because the overall near term market isn't giving them reason to, and finally 3) these can't be interpreted in a vacuum, the JPM short (hedge) which was the huge loss they announced last week was largely in Investment Grade Credit, IG credit, which unfortunately we can't track is definitely moving solely because of the JPM situation. To further clarify, as I mentioned in the early part of last night's post, JPM's losses are likely just starting unless they had unwound the position before announcing it, which doesn't seem highly likely as movement in covering huge position there would have been noticed. Investment Grade Credit is jumping higher, there are a few reasons this could be happening and likely it is because of several reasons combined: 1) A flight to safety trade (but that doesn't explain the move itself), 2) JPM is trying to cover the short thereby driving up IG Credit and 3) Everyone and their mother is buying IG Credit in anticipation of JPM covering their position there to profit from JPM's short covering. As mentioned, it's probably a combination of at least the last 2 factors. The question is, "How is this effecting other credit?" as we cannot look at the credit markets and not account for the huge position unwind in JPM and how hedging and other strategies may be effecting other types of credit.
This is 10year IG Credit in blue, note the timeframe at the bottom, the huge jump at levels that haven't been seen since December has a lot to do with JPM.
And why are Credit markets important? They are reality, when equities are off in Neverland ignoring reality, Credit tends to lead, equities eventually tend to follow.
The CONTEXT model for ES is hugely divergent, but again this is a proprietary model including credit, treasuries, etc. It's difficult to say how much JPM is effecting multiple markets.
Here's ES after testing VWAP which it broke through earlier today, it went on to make a new intraday high, but couldn't mov through the standard deviation of the upper channel.
This is High Yield Credit which had been relatively supportive of the market, I warned last night this could change quickly, it has lost ground today with the SPX (green).
Here's a longer view of the same credit since May 1, overall, it has held up much better than the SPX, which is supportive of the market, while it did lose ground today, it hasn't followed the SPX to new lows since May 1 so the longer view is it is still positively divergent, but it would have been nice to see it hold up or move higher intraday today. Again, it's hard to say how the JPM debacle in IG credit is effecting other credit. HY Credit is more of a risk on version of credit, used when the market rallies.
High Yield Corp Credit which was also mildly supportive of the market as of Friday's close also lost ground today, again though it is difficult to determine how much JPM may be effecting HYC Credit.
For those who haven't seen our longer term analysis, the downtrend in HYC Credit (vs the lateral trend of the SPX in green) is a clear signal that the big picture for the market is very bearish, however HYC Credit hasn't made a lower low and in fact is still above its downtrend channel, this cold be interpreted as supportive of the market near term, I also think there's a likely shakeout of shorts that sent HYC credit above it's downtrend channel, so there are a lot of cross-currents here. One thing that is clear is the big picture for the market (bounce or no bounce) is very ugly and the reason I'm not letting go of any of the short positions we have been building.
Commodities aren't telling s much today, they are pretty much in sync with the $SD correlation, while the SPX slightly outperforms it intraday.
Another "Big picture view" of the market shows commodities in serious trouble vs the SPX, eventually the SPX should move toward commodity weakness, this is not just US market weakness, but global demand and global market weakness.
Yields we negatively divergent as mentioned last night, on Friday, today the SPX's drop puts the index closer to the correlation between Yields and equities. I don't see this as telling us anything, it's just a function of the move in the market.
The Euro since the 9:30 market open at the red arrow hasn't lost ground, but it hasn't done much either. A move higher here in the Euro would mean a move lower in the $USD which would be market positive in the near term.
The $AUD often is a good leading indicator/currency, it is more or less in line with the SPX intraday and isn't offering any real insight.
This is the SPX (green) vs the Euro today, as you can see and as mentioned above, the SPX is outperforming the Euro/$USD correlation, but not by a lot.
This is sector rotation over the last few days, you can click on the chart for a larger view. Financials at the bottom (green) have taken an obvious sector rotation hit with the JPM news, Defensive sectors in red, and the two shades of yellow are acting as they should (these don't tend to be leading indicators, but can give us insight in to sector rotation). Somewhat interesting, Industrials in purple and Tech in grey-ish blue are both seeing better sector rotation vs the SPX and discretionary at the top in orange is holding up pretty well, this is slightly bullish, especially if we are correct about a tech led bounce.
Intraday sector rotation shows financials leaking off, Industrials and Tech are doing better than I would expect while defensive sectors are doing what I would expect.
No comments:
Post a Comment