Leading Indicators

I captured these just before the last post to see if I could glean any additional insights. We'll start off with leading indicators (later we'll check internals and the Daily Wrap as they are really where all of this began being so deeply oversold (worse readings than bear market readings).

First, probably the most important of the Leading Indicators and the predictable instigator and support mechanism of the market from early August, HYG.

HYG vs SPX (leading indicators will always show SPX in green, unless otherwise noted like "SPX prices inverted").

Clearly HYG wasn't supportive of the market at all,  that is until the close. Look at HYG in to the close and the SPX, that's not an accident and it fits well with the The Week Ahead post which is the same thing I've thought all week. I'll show you more in a minute, just remember the SPY charts from the The Week Ahead post this afternoon.

I suspect the market is far too weak to stage a breakout, even a head fake -failed breakout without some help from the market levers. Take a look at HYG's intraday charts and remember the week ahead SPY charts...

 The 1 min above and 2 and 3 min below have an intraday positive divegrence just like the SPY, note the move up in HYG at the close, also like the SPX in to the close.

2 min HYG positive today

3 min HYG positive today.

I suspect if this were going to be a longer/stronger divegrence, it wouldn't have started upward toward the close, but rather stayed in the area and continue to accumulate.

As I said with the SPY in the Week Ahead, the roof on the move is at the 5 min chart which is not positive, but leading negative, that's the same situation for HYG so it looks like it's clearly being used as a lever to help push the market to our head fake move and looking at the close, I'm guessing it will be right off the bat Tuesday morning.


Earlier I showed you the trouble HYG is in, HYG As A Leading Indicator,  I suspect HYG will give out first and lead the market lower in to stage 4, I just don't think anyone will be wanting to hold HY credit so close to a decline.

This is the August rally and even with today's move, HYG is still very much in a reversal process, the 9th day of lateral trade, this is likely one of the main reasons the price gains in the overall market have slowed to almost nothing and the averages are headed sideways in their own reversal process.

Longer term on a 4 hour chart, HYG gave out back in May, it gave out again in June/July, the next leg down should be substantial and remember, credit leads equities.

Here I have inverted the SPX's prices so you can see what the normal correlation would be between the  VIX (spot) and the SPX, normally they'd move almost exactly together, but this week as we expected to be in the reversal process with deeper distribution, the VIX has outperformed the SPX which suggests protection is being bid.

In fact of all of the market correlated assets, the VIX has one of the clearest, cleanest reversal processes.

The red box is the market base from 8/1-8/8.

Here VIX Futures (VXX) are also outperforming the SPX (also prices inverted), especially toward the later part of the week. We often see this when the correlation is broken because there's real demand and a real bid for protection.

I like to use short term yields as a leading indicator because short term the market is drawn to them like a magnet. You can see yields have been supportive of the move (short term), but have broken away as the market has turned lateral, the topping/reversal process.

This is a longer term look at the same with the August rally at the last yellow box on the right, you see short term reversion to the mean, right now Yields are pretty severely dislocated and will be exerting pressure on the market to the downside.

Earlier in the week I posted TLT (20+ year treasuries) looked like they might pullback,  TLT / Treasuries. The divegrence is still there and we saw some late day selling in them, remember they are part of the SPY arbitrage and them moving down helps the market move up with two other assets, HYG moving up and VXX moving down, we already saw HYG at the close, now TLT. I doubt this is coincidence as weak as this market is they'll likely pull every lever.

I took a quick look at the averages and the Trend Channel, except at "A" when the Ukrainian government claimed to have destroyed an armed Russian Column that upset the market, there hasn't been a single stop and the channel has held the entire uptrend until the red arrow, that's about when prices started moving more to the side/laterally, which is exactly what the Trend Channel is designed to do, keep you in during the trend, pull you out when the trend has ended, but that doesn't mean an immediate reversal, in fact I've addressed this a couple of times this week, but it is telling us the easy gains on the upside are over.

The DIA also had the same stop at the Ukrainian news, but otherwise held the entire trend until the two red arrows, you'd stop out on the first and the trend has obviously turned lateral since.

Here's the QQQ Trend Channel and recent stop, note the change in trend from up to lateral.

In fact, the Trend Channel pulled the SPX and Dow out after 10-days of rally for a gain of +4.34% and +4.10% respectively. Over the 6 days since then until today's close, the SPX and DIA have gained exactly +0.55% and +0.35%... Not exactly worth your time or the risk is it.

For the Q's the Channel stopped out later, 14 days in to the trend with a gain of +5.63 and since then only +0.26%!

 This is VWAP today on SPX futures. As mentioned this morning, it seems a Citadel algo under the direction of the NY F_E_D pushed SPX futures to new highs >$2000 which were promptly lost as VWAP was broken at B and headed to the lows of the day at "C". At "D" we have the intraday highs (until the close) which faded right after the European close back to VWAP.

Looking at the VWAP/ES trend for this move, it's pretty easy to see the change in trend.

I looked at single Currency futures, this is AUD and it looks like it's going to come down with this 30 min negative divegrence

The 30 min Euro is still in line with its downtrend, this may change if Draghi acts next week.

The $USDX also has a deep leading negative on a 60 min chart, this isn't the first time I've seen it this week.

I didn't cherry pick these, they were the ones that stood out the most. These are not short term intraday divergences, but more along the lines of short term/Swing (or a bit longer ) reversals.

Interestingly the Yen's 60 min divegrence is leading positive. Taken with the above currencies, this would suggest there's no carry trade that will come to the market's rescue, rather it looks like the carry pairs are about to see a decline which would be in line with a market decline as well.

All in all, it looks like the same concept we see about 80% of the time is going to play out again as we have maintained all week.

Not that I subscribe to any of this as I have shot down these fractal correlations and Hindenburg Omens numerous times as I feel each market is different even though I may agree with the end result, but the 1929 high was the day after Labor Day which is coming up Monday, again, just an interesting aside.

I'll have much more for you this weekend.

Have a great weekend and safe holiday.