Leading Indicators

It seems to me that all downside pressure right now is coming from the Euro (EUR/USD and other pairs) crash. Some say it is the end of Euro repatriation to European banks as they try to balance books at the end of the year (that would have driven the Euro up and an end to repatriation would send it down), that may be, it may be carry trade related as well. There's definitely a stronger reaction between the EUR/JPY than the AUD/JPY although there is a reaction there as well, but whatever the cause, it's definitely putting pressure on the market at least intraday.


Lets look at all of the Leading Indicators though.

*All Leading Indicators are compared to the SPX which is always green unless the comparison symbol is noted to be something other than the SPX).

 Commodities as a risk asset are not performing very well today vs the SPX, but this seems to be tied more to the $USD which we can use the Euro as a proxy for as you'll see below.

 This is commodities vs the Euro (I used the Euro because it has a positive correlation with the market and divergences are easier to see, the $USD has an inverse relationship so they look like mirror opposites. The Euro makes up 50% of the $US Dollar Index so it is a suitable proxy for this kind of analysis).

As you can see, as the Euro tumbled, commodities stuck closer to the EUR/USD correlation than they did the market's "Risk on" correlation which makes perfect sense considering what we were expecting of this move (not a move that will stand on its own feet, just a strong knee jerk reaction).

 Here's a longer 60 min chart of the Euro vs the SPX, there's some trouble in the area, it's harder to see here, but...

 On a 1 min chart intraday you can see how the Euro plunged vs. the SPX. Usually these two have a very close correlation so the lack of Euro confirmation is pressuring the market.

 This is the EUR/USD pair overnight to present on a 1 min chart, note the 3C negative divergence and there's a small positive one now, that may be what the intraday upside I noted in the last post is all about, or the 1 min positive can simply hold the Euro in a consolidation for a little while.

 Here you see the $AUD, a great leading currency, also breaking its correlation with the SPX, although not nearly as bad as the Euro.

 30 min $AUD vs SPX shows confirmation at the left, a negative divergence in the $AUD and then the SPX falling a bit and a positive divergence in the $AUD (white) which is what we were seeing that was part of our trend 1 "Upside pop" analysis.

 Longer term the $AUD is not confirming the SPX, it is in a slight negative divergence here, I'd like to see it grow bigger and that may require the market hold its ground in the area for a bit, but from an options perspective, I'd rather move out of them and in to something like a 2-3x leveraged long ETF as the time decay on options will start to eat them up, especially if the market just stays in the area.

 FCT has been a good leading indicator, better on a longer term basis, but here we see it too is at a negative divergence with the SPX or is not confirming the SPX upside today.

 Yields are like a magnet for the market, note the longer term positive divergence in yields that warned of the SPX higher.

 Credit-High Yield Corp. is in sync intraday, but it has not made the high it should have made to confirm the market on a longer basis.

Finally we saw some recent positive divergences in High yield Credit and they worked out well.

As for intraday upside as mentioned, ES is showing a 1 min positive divergence as was EUR/USD so I'd think it's still coming.