Leading Indicators

Other than the intraday information, there are two other things I want you to focus on that I try to offer. The first is the longer term negative divergence vs the SPX in a number of Leading Indicators, this is by far the largest I have seen since we started using this layout, it's enormous. The second thing is my view has been that before the market can turn down, tactically (tactically represents our actions to fulfill our strategic outlook, such as shorting a stock at an area we have been waiting for it to hit), the short term Leading Indicators (which are much less significant from a strategic out look, but very important from a tactical timing outlook) must go negative/dislocate from the SPX.

*Note that all Leading Indicators are compared to the SPX which is always green unless otherwise noted*

I'm going to put up the SPY Arbitrage and CONTEXT, you may be able to compare some L.I's to the SPY Arbitrage and see where there has been pressure (red) or manipulation (green) through the 3 assets used to make up the model : HYG, TLT and VXX.

 Right now (30 min+ delayed) the SPY Arbitrage is near reversion to the mean, or fair value according to the model.

The CONTEXT model for ES (SPX Futures) has seen a pickup recently in risk assets globally that typically trade with ES, there's about an 8 point positive differential the model is suggesting, so we'll have to see what this means, if this is building longer term or suggesting an intraday pop from here or just more effort to try to entice longs to step in (although that seems like a waste of time).

Here are the assets...

HYG High Yield Corporate Credit- a VERY Liquid Credit ETF used by smart money as banks have largely taken credit off their balance sheets making trading credit in large size very difficult.

This is a great example of HYG moving to a short term negative divergence or dislocation with the SPX instead of moving up or even leading it like we saw during certain days last week. Since the capture, Credit hasn't moved up at all, in fact further down making today's Prices in the major averages look VERY exposed to a downside move.

 The divergence between HYG and the SPX is starting to form, the SPX can make volatile moves up and down or even just up, so long as HYG keeps diverging to the downside, we are in good position to enter shorts as far as timing goes.

 TLT-Long term Treasuries (20+ years) saw a stronger move down Friday morning than the SPX did on the upside, this looks like the kind of manipulation used to support the market knowing smart money in credit (which often leads stocks) was moving out Friday and today, pulling the SPX down as far as arbitrage, this was an easy way to respond to counter that pressure, it is manipulation short term.

 TLT 15 min chart shows the longer term divergence we are looking for, remember that TLT tends to move almost the mirror opposite of the SPX so the correlation at the left (green arrow) is the natural correlation, moving from flight to safety to risk on and back. However since March when breadth indicators went in to the trash can, there has been an obvious flight to the safety of Treasuries as they have moved up WITH the SPX when they should have been moving down, especially at all time new highs. Someone is building a safe position in expectation of something much uglier longer term and is willing to give up short term gains to build that protected position. The fact TLT actually moved higher just shows that this is REAL Demand, not trumped up manipulation.

 VXX (Short term VIX Futures) shows this morning a move in the VXX that wasn't in scale with the SPX around 11:15, this is manipulation of VXX to benefit the market, look at the SPY arbitrage chart at the same time and you'll see it's near the high for the morning as this lever was being piulled to keep the SPX afloat.

Longer term this too has a mirror opposite relationship with the SPX seen at the green arrow, but recently VXX has failed to make a lower low while the SPX makes a higher high or a series of them, this is VIX futures being bid in an effort to grab protection, similar to TLT.

Right now VXX is being pressured to move the market higher, this is VERY clear. TLT is seeing the same movement because HYG is making a quick drop lower, VXX and TLT are being used to counter that to keep the market from dropping prematurely, but drop it will, I feel very certain of that short term as well as longer term.

Some currencies...*Despite what the daily or longer term implications are, intraday as in the last hour, all of them, FXA and the Euro have been pressured up to help the market (but the move is very small), the Yen and $USD have been pressured down to help the market, again the moves very small compared to what we see intraday below.

 As mentioned last night, the $AUD (Aussie) looked like it would head lower, this is a huge leading negative divergence in the currency vs the SPX and is not good for the market, this is market negative.

FXA in the shorter term divergence I'm looking for on a 15 min chart, this one is there, the others need to join, mostly credit and they are moving.

As I said, the longer term negative dislocation is the largest I have seen, the fact the $AUD is leading the market negatively this bad is a simple reflection of how bad the Chinese economy is and it has been the global growth driver.

The Euro intraday is also negative vs, the SPX, this is a lot of negative pressure on the SPX, no wonder they've resorted to manipulating volatility and treasuries to hold the market up.

Longer term major dislocation in the Euro, this use to track the SPX nearly tick for tick, this is showing obvious weakness in Europe. The fundamentals aren't good, the market can't ignore them forever, especially with the F_E_D's new posture.

The $USD is moving up with the SPX intraday, this is the opposite of the normal correlation and pressures all risk assets, stock, commodities, etc. Again more negative pressure on the SPX intraday.

 Yields intraday remain supportive, this is largely a function of the manipulation of treasuries discussed above under TLT.

Yields longer term with a gigantic negative leading divergence, this suggests a move down larger than anything we have seen since 2009.

 Commodities intraday fell out with the SPX, as a risk asset they are not willing to take on any more risk.

This is the longer term dislocation, the largest I can track in the history of coomods. This tells you something about demand for raw materials and global manufacturing.

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 High Yield Credit is less liquid and therefore must move before HYG in most cases because of the liquidity problem. Since capturing this chart, it has gone even more negative.

Credit is a much bigger market than stocks and much better informed, thais is why they say, "Credit Leads, Stocks Follow". So far, Credit's lead to the downside does not bode well for the market.

Finally HIO as an independent measure of risk appetite is negatively divergence, it has been the last few days, but now more than ever.