The Week Ahead

This looks like a pretty clear no brainer with F_E_D concerns (rightfully so) for next week apparently behind some of the selling while I think other factors are behind some of the bigger picture selling which cannot be separated from the F_E_D.

HY Bond flows were actually positive going in to the early August base, a sign that we were probably looking at the bounce expected from the Daily Wrap of July 31st. However this week we have 765 million in HY outflows on top of last week's 198 million, in other words HY credit, just like before the August rally, is giving a tell signal again. HYG's bigger picture chart is giving the same tell signal and in the SPX we have lower highs and lower lows, but the market rarely makes it that easy.

HYG's positive divegrence this week is still there and it's not for nothing , it's not a coincidence.

While I can't pinpoint the exact moment, my guess is HYG is used to boost the market, maybe even our head fake move because the market itself just doesn't have the positive short term divergences to do it alone. However after that, I'll say HYG will be head ed straight back down and I'm guessing this happens before the policy announcement on Wednesday. Judging by the scramble toward our set-up targets in several of our short set up plays today, despite a red market, it looks like they are in a hurry to get that move in place and I suspect HYG is going to help early in the week and then retreat before the market.

So rather than last week's "More of the same" sideways chop, I think the SPx's downtrend of lower highs and lower lows I have posted several times this week is a target for technical traders and HYG will likely sponsor the move, however breadth and 3C charts are so weak, that's the time to use any strength as charts like FSLR and SCTY that are up today, are so VERY close to the targets they need to hit. That's when we want to get those positions, not that having them now is a problem, I'm just looking at the best timing.

That's my take based on what I see right now, HYG sponsors an early move in the week before Wednesday breaking the SPX downtrend and getting longs to bite and by Wednesday I suspect the F_O_M_C will move us from stage 3 to stage 4 and if they don't breadth will.