Market Analysis / Leading Indicators

In last night's Daily Wrap I made the argument several times with charts that the market "mini" cycle was still fine, but interrupted on the outperformance of the most shorted Russell 3000 names (I use the top 100 heaviest shorted Russell 3000 stocks for this Index in my new custom indicator), I just call it the "MSI" or "Most Shorted Index" as I took all 100 names (which is obviously a fluid list) and created an equally weighted Index with these.

In one part of last night's post I said,

"like sentiment indications all suggest this mini cycle (up) is still alive and well, it was just the Russell Short Squeeze today that threw timing off track."

So I wanted another look at Leading Indicators because as I have been pretty clear about this entire time, this "mini-cycle" (is what I'd call it) does not and has never looked strong like normal cycles, even mini ones. While Wall St. almost always completes a cycle once they've invested in to it, on the other side of the scale of this mini cycle is a VERY nasty looking market; so I'll show you what we have, but remind you that there's another world out there beyond intraday trade and the current cycle we may be positioning trades for.

First, CONTEXT's Model for ES/SPX Futures is almost at dead even, maybe negative 8 points or so and I attribute most of that to the rally in Treasuries.

The SPY Arbitrage...

"could" be used to help move this cycle, it is improving, but to really improve and help the market, TLT needs to come down, VIX futures need to come down and High Yield Credit needs to advance. 

The logic is very simple, the computers read an advance in HY Credit as "Risk on" and a fall in the VIX as traders not worried about seeking out a hedge or protection and the fall of Treasuries as a rotation from the "Flight to Safety" trade and in to the "Risk on" rally trade, that's how these computers that can make thousands of trades a second (micro-seconds now) read the market.

I did say that I thought the Inverse H&S, a popular and recognizable technical price pattern for even novice T.A. retail traders, was not there coincidentally, that it was there specifically because the market is so under-invested in this mini-cycle, they are actually counting on retail to do some of the heavy lifting.

If the SPY Arb can join, it's better for a move up and TLT was looking like it may come down as you know from a recent position opened.

 I can't make a strong case for HYG, I think that's because institutional traders are the ones who use it and they don't want to get caught without out in the open, but HYG would help the market if it went up, the only case I'm even going to attempt to make is the equal lows vs the SPXs lower lows.

I inverted the SPX (flipped it like turning a page up so it's the opposite of price action) and then compared it to a normally placed VXX (short term VIX futures), VXX need to come down to help the market move up, again I'm not going to make any more of a case other than the weak performance of VXX as the SPX made the second low to the right, VXX should have shown more fear and been at least as high as the SPX.

Sentiment was discussed last night, how it was strong all day, but especially in to the EOD, today it's more of the same, more strength so again as an effective leading indicator, it's sending us a short term bullish message for the market.

 I told you about this last night in the Daily Wrap, High Yield Credit making higher, consecutive moves and being up and closing well in to the EOD, it's making higher highs and holding well today and this is a skittish asset because of thinner liquidity, so it looks like some institutional traders are expecting a short, near term market pop to the upside.


The Carry Currencies "Could" help if they were to rise against the Yen, even if the Yen rises, along as they have better relative performance.

 Improvement on the 15 min Euro

3C improvement on the 15 min $AUD.

And perhaps the Yen to take a break, that would not mean the Yen is in trouble, but as it took a break, while the Yen is away, the S&P will play.

Rotation from Safety to Risk... Treasury Futures

 This is the 10 year Treasury future on a 15 min chart, seemingly showing distribution.

You know what I did earlier with TLT, well the 30 year above is as close to TLT as you get and it has similar signs.

Now as a reminder of the other side of the coin...

I mentioned Yields last night and how they move and pull the market toward them. This is the 15 min 5 year Yield.

 As I described last night, the higher highs and lows in Yields eventually pulled the market up, now have lower highs and lows so you can see exactly why I want to sell short in to any price gains that set up good entries.

As a reminder, just a longer look at some of the averages.

 DIA 2 hour

IWM 15 min

QQQ 2 hour

SPY 30 min.

Just to keep things balanced.