Strategic Update

This is one of the Tweets that is right about what I was saying yesterday about longs being frustrated, shorts being frustrated.

By the way, I do think the market is coming down intraday, ES and others really look very clear about that.

First let me show you the CONTEXT chart, now Capital Context admits openly that they re-weight their ES model whenever the feel it is needed, I believe they do their SPY Arbitrage every day in the morning.

Remember last week when the ES model was +70 points above ES and then all of the sudden it was 10 points or so the next day and ES hasn't moved, but what did change was the Carry trades that are part of their model, the USD/.JPY flipped 180 degrees on the F_O_M_C day. Since then, the $USD correlation with the market has changed AGAIN! Yes, Again so I think they'll have to readjust the model again as the market is moving with the $USD unlike the last several days!!! It's crazy.

There may be an $AUD/JPY correlation, there was yesterday, but the JPY doesn't look right for it today, it must be driving them insane.

Take a look at ES and 3C, this is where I think we have some stability, some consistiency.

 3C on the 1 min Es chart (SPX futures) as reported in the last 1 or 2 posts is suggesting strongly that ES pulls back intraday. This "could" be because the $AUD is down and market participants saw the $AUD/JPY correlation yesterday and expect the same today, but that's just conjecture, all we know is three's a solid 1 min negative divergence.

 There's no damage at all on the 5 min chart, it's in line and looks like whatever pullback could come from the chart above, it's noise, it's throwing traders off, but it's not serious.

The 15 min chart is leading positive at the perfect area, this Inverse H&S-like price pattern. This suggests the 5 min will stay strong, prices will ultimately move strongly to high levels that are being telegraphed here.

The 30 min chart is just as positive, you've seen it many times and below the 60 min chart is really giving this a lot of credibility.

60 min ES leading positive divergence, and all of the Index averages show the same so there's excellent confirmation.

Some other assets and indicators....

 Again like the last 3 days, commodities are not in sync with the SPX, however, they are in sync with the correlation we expected to see this week with the Dollar.

Commodities in brown and the $USD in green, so commodities are acting like they should, the market is not following the correlation anymore, although it was nearly perfectly late last week and at the start of this week.

This is the $AUD, yesterday, remember I said yesterday the market followed the AUD/JPY? You can see that here.

Today the $AUD is nose diving, this is why I wondered if traders are lightening up on their long intraday positions, thus the ES 1 min 3C divergence because they see the AUD today and recall it's near perfect correlation with the SPX yesterday.

 The $USD vs the SPX in green, the correlation (Legacy or normal USD correlation) that we saw late last week when there was a flip and early this week has flipped AGAIN and the SPX is moving WITH the $USD, how weird, yet commodities are not.

And the FXY isn't in the right position TODAY for the same AUD/JPY correlation. 

This has to be driving FX traders, arbitrage traders and Capital Context nuts.

Some more assets....

 This is the NYSE TICK, recall yesterday, the day I called "Pause", "Stuck", etc, the day that seemed to be purposefully controlled and not allowed to pop like it seemed to want to, even though it had a respectable finish near 1%.

The TICK chart yesterday was somewhat dull, today it's nearly absolutely trend-less.

ONCE AGAIN, I GET THE SAME FEELING AS YESTERDAY, THERE'S A SPECIFIC EFFORT TO KEEP THE MARKET AT A CERTAIN LEVEL AND THAT IS TO SAY, NOT TO PUSH IT HIGHER, BUT TO CONTROL IT FROM MOVING TO MUCH HIGHER.  

Try to recall the flatness/trend-less chart and what I just said.

 Short term Yields vs the SPX saw reversion to the mean again today like yesterday at the green box, the red yields tend to pull the market toward them.

However if we adjust the zoom to its proper scale...

The SPY still has quite a bit of upside before it meets up with yields and this usually happens.

This is suggesting that the ES charts as well as the other Index futures are indeed correct about a strong move to the upside.

Take a look at HYG- High Yield Corporate Credit, "Credit leads, stocks follow...", HYG is in very good position for the market to move higher near term, it is SUPPORTIVE.

The less liquid High Yield Credit is the first to run scared because of low liquidity, but even it (as you see has led the market to the left and in the market's base area)  is making a leading positive divergence, it can easily be said that High Yield Credit is supportive of the market right now AND AS SMART MONEY ALMOST EXCLUSIVELY ARE THE ONES TRADING CREDIT, IT'S ALMOST AN ENDORSEMENT FROM SMART MONEY THAT THE MARKET HEADS HIGHER.

3C HAS THE SIGNALS THAT SAYS SMART MONEY HAS PREPARED FOR A MARKET MOVE HIGHER.

There are plenty of signals above.

Now listen to the "Sample" sentiment from StockTwits....

"I am back to my stupid ways. I am now 70% invested as of Monday. Only problem is they are all shorts and the market is ramping. I have IWM 91 Puts for Aug. I effed it up again. A week late on my trades."

Ok so as we knew before, longs and shorts are frustrated.

Now finally, these are the closest thing we have to Institutional Sentiment indicators.

As you see the first in blue vs the green SPX led the market down to the left and went positive right around the start of this pattern I showed earlier when talking about where 3C will usually go to vs where a divergence starts.

It is also leading the SPX today, so this is telling us that in addition to credit, Index futures and everything else, even their sentiment is expecting more upside!

Now this is our second version of institutional sentiment, it is a good indication because it is NOT correlated to any other asset, just what they feel about risk.

It too led the market lower to the left, it too went positive at the start of the price pattern and it too IS LEADING THE MARKET, IN FACT AT A NEW LEADING POSITIVE HIGH!

So, this is my theory.

Shorts are frustrated, but they are obviously in the market.

Look at Monday's recovery, it wasn't threatening to shorts, yesterday's near 1% gain was up, but not threatening to shorts.

My gut feeling is that this is a "Boiling the Frog" scenario.

They say as an analogy that if you want to boil a frog, if you throw it in boiling water it will jump right out, but if you start it out at room temperature and slowly increase the heat in small increments, sooner or later, the frog will stay put and you will have boiled the frog.

It seems to me to be the same way with the market.

If you are Wall St. and counting on a short squeeze to help propel the markets higher, do you want that squeeze to fire off at SPX $1575 or at SPX $1625?

So perhaps what I noticed yesterday and most of today is the market being moved up, but not enough to make the retail frogs fearful and jump out of the pot. However as soon as they have the market in a higher place, they unleash the market and let the short squeeze start 50 points higher.

Everything I've seen seems to at least make this plausible if not offer confirmation.

That's what I think is happening.