Quick Market Update / SPY Arb

Before I put the more important one together, I just saw this and it made sense, from 3 assets I suspected I knew what 3 others were doing and they were, it's pretty simple, the Carry crosses all failed, from 12 pm and the last just before 2 p.m., the SPY arb asset classes were activated at the same time.

First what TF (Russell 2000) futures looked like and the reason for the last post as there has been dispersion in the market today worse than yesterday with the IWM down quite a bit more in the red vs the SPX.

 ES (SPX Futures) intraday, this is why I said something about them maybe switching places as ES does have a decent negative divegrence intraday, but the surprise was the fairly sudden IWM positive after being down in the solid double digits.

 Here's the very fast leading positive in the R2K futures and here it is in the 1 min IWM

You can see it clearly at 1:30 and growing since.

Meanwhile the natural market engines, the carry trades have been failing one after another, it looks like AUD/JPY was the leader today earlier...

 This is the AUD/JPY with near perfect correlation vs ES in purple until about 12:30 on as the pair falls.

EUR/JPY was in no position to help as it has been down since 10:30 and the last was USD/JPY...

And it just went negative on ES, watch how quickly one system is swapped out for another...

There are only 3 assets in the SPY arbitrage (fooling computers in to thinking the market is displaying a risk on signal). To activate a positive SPY Arb the 3 assets which are TLT (Treasuries or traditionally the flight to safety), VIX futures/VXX which is also defensive as a reach for protection and HYG, hY credit which is risk on. To activate a positive SPY arbitrage you need both TLT and VXX down as if there's no demand for safety and HYG up as if there's demand for risk, remember the times above in the carry pairs and look at the moves below.

We were expecting a pullback in TLT (even though recently it has been behaving more like a risk asset) so TLT was already down.

This VERY fast move in VXX is abnormal for anyone who watches VXX, but it is needed to get the arbitrage to work.  However VIX futures did not move as quickly or dramatically as VXX because it would cost too much money to move them when VXX IS the asset that needs to be moved.

These are the actual VIX futures, it doesn't matter what they do for SPY arbitrage, only what VXX does as it is assumed VXX is representing VIX futures, but it can be moved without moving VIX futures on an intraday basis.

The smoking gun for me was HYG right as the last pair, the USD/JPY failed.

TLT and VXX down, HYG up, SPY Arb activated.