HY Corp. Credit (HYG)

I don't have time to get in to a history lesson of the High Yield markets and how they changed since Lehman (liquidity evaporated), I will though as it is interesting and it is material to why we use HYG as a Leading Indicator.

Making my rounds this morning, I saw this which is quite impressive, not good news for the market either. For now we'll just go with the broad concept that "Credit leads, stocks follow", HY credit (High Yield) is a risk asset vs the more defensive Investment Grade, HYG is HY Credit and one of the most liquid ways to trade credit, thus it has become a fantastic leading indicator. Last week I showed how the timing timeframes (with the strategic already very negative) were falling in to place. This is Friday's post ironically (or not), Things just got real interesting for HYG / HY Credit . In the linked post you can see al of the HYG charts and divergences, however an HYG divergence is not the same as say a SPY divergence, HYG divergences are not going to move or change the market, only HYG/Credit's price action does that, as I said above as a broad concept, "Credit leads, equities follow". However the 3C charts do give us a good idea of what HYG is going to do next and Friday it started getting so ugly both on long term charts and more importantly the short term timing charts, I wrote this Friday afternoon:

"Need I say anything? HYG intraday, that's some serious underlying action and not bullish by any means..."

That is significant because this morning we have what really matters as far as HYG goes as a Leading Indicator, price action.

 HYG is one of the best (from 3C divergences) early warning's of a market ramp and of a market decline, in fact I'm back testing and tweaking a system now to automate HY credit signals. This is a more strategic timeframe of 30 mins, negative, you can see most all of the timeframes on the Friday post linked above.

 This is what really started getting interesting though, at 15 min and the area and the divergence vs the price action. However the reason for Friday's post was this...

The 1 min intraday timing scale and divergence for HYG, now look at the gap down this morning taking 4 days of gains out just this morning, but the bigger point is the reversal as it is HYG's price and not divergence (3C, but rather divergence vs the market) that matters.

I have a few more morning rounds to make, but considering the above, I may need to focus more of my time on individual assets and Trade Ideas/Set-ups or what's in place right now.