Leading Indicators and Futures

Leading Indicators today are so flat I don't think I've ever seen them this indecisive, they are nearly perfectly in line with the SPX except for 1 out of about 10, that's High Yield Credit and it's not really that off the scale, it is showing better recent relative performance, but nearly everything else is in what I'd call a holding pattern. This seems to me to be more tactical than strategic, in other words what we have been calling "Trend 1", a quick (quick is relative to the size of the other divergences representing the other 2 trends) pop to the upside. I don't want there to be a lot of confusion over quick as I noted above because it is small or quick looking when compared to the other two trend, trend 3 has been in place for months. This "Trend 1 pop" could still be a very strong move, this is represented by calls in the SPY and as of Friday the QQQ as well, I prefer to use more leverage on moves that tend to be smaller or faster and less leverage on longer lasting moves.

The other indication I want to show you is in futures for the Equity Indices, the S&P and NASDAQ (ES and NQ respectively). They are showing some momentum on charts that are fairly substantial and the momentum is very recent, meaning I suspect it is tied to expectations regarding the market's reaction to the Fiscal Cliff and as I pointed out yesterday, the resolution to the Cliff may not be ideal, it may in fact be horrible, but it's the market's reaction to the news that is important, not the news itself, at least for our purposes.

So here are the trends in futures that are much stronger recently.

 ES 30 min chart with a new leading positive divergence,

NQ 15 min chart with a new leading positive divergence, unfortunately I don't have any more history on the TOS charts to show the bigger picture.

From the looks of these charts, it seems like the market is already pricing in some resolution in underlying trade.

For the time, positioning hasn't changed and I see no reason to change it, the short term trend 1 is covered with more leverage in SPY and QQQ calls, Trend 2 is covered with less leverage so it is easier to hold them without massive drawdown pressuring the position and those are in either remaining core shorts are 2-3x leveraged short ETFs. As for the trend 3, I haven't positioned anything for it, I haven't even wanted to bring it up as I don't think we are there and don't want to confuse people, but certain analysis forced me to at least cover it in some detail.