These Leading Indicators were captured before the last post, I was going to put this out first so the charts are as close to the capture time as possible, but in most cases, it's not a big deal.
Lets just jump in.
Our SPX:RUT Ratio which called a base/bottom for a bounce and has since gone negative, this may be partially on the broad market or specifically on the IWM or a blend of the two, either way, the indicator has had a solid track record and while not SCREAMING negative yet, there's certainly a change for the positive divergence earlier.
As I've mentioned numerous times, one of the first places I look for divergences is in HYG / High Yield Corporate Credit as it will lead a bounce and it will lead a decline and the divergences will tell us before the price divegrence with the market which is the actual trigger, Here at the top or stage 3 of the February cycle, HYG led the market lower and in to the recent SPX base (W-like), it has been somewhat supportive, but since the SPX "seems" to have missed the bounce last week with the Russell 2000, there's a clear and obviously negative price divergence between HYG (blue) and the SPX (green).
This does not bode well for the market.
A closer look at the base area for HYG/SPX shows the same, it's the negative divergence to the right (red) which is problematic for the market as a whole, this is risk off.
Credit is not following equities mini-bounce/exuberance.
Intraday I showed earlier how HYG was being used to lift the SPX , but even that has failed at this point with both assets red and HYG diverging to the downside intraday.
High Yield Credit which is less prone to the manipulation or ramping that HYG is also shows the February cycle and just before with HY Credit leading to the downside before the Feb. base and then in line through the rest of the cycle, but
leading negative now along with all HY Credit.
This is a closer look at HY Credit vs the SPX and the in line status at the green arrows, slightly positive at the white and negative at the red, the current leading negative divegrence is the path of highest probabilities for the board market here.
FXE used as a proxy for the Euro (orange) vs the SPX (green)...
Recently the EUR/USD has been the go-to FX pair as it was years ago before the JPY based carry trades took over and it is once again at least recently. You can see the correlation between the Euro and the SPX, or you might say the $USD (which largely moves opposite the Euro) and the SPX.
Here at this moment to the far right, as I pointed out last night, the market ran past the EUR/USD correlation that had been holding, this morning and overnight futures knocked lower and EUR/USd a bit higher, but they reverted back to the mean, the correlation.
On a closer intraday basis, you can see that overshoot in the broad market yesterday in the yellow box, the problem is the neither the Euro nor the EUR/USD were in line with the move leaving the futures exposed and without support of the tight cross asset correlation that has been driving the market at least the last week and a half.
This continues to be a negative development/signal for the broad market.
The $USD legacy arbitrage runs opposite equities, commodities and really anything that is $US dollar denominated like oil and gold. Here I've inverted the $USD price (using UUP as a proxy) vs the SPX, so in a normal situation, the two should move exactly together as they actually move opposite each other, but because I inverted the UUP price, it is easier to see changes in relative performance and they should track together.
At the top of the February cycle you can see the $USD or UUP on the chart appears to turn down and the market should follow that, in reality it is turning up as the two have an inverse correlation, this is just for viewing purposes. At the move yesterday in to the close as mentioned above, the market had no support from the Euro, the USD or the EUR/USD which I pointed out as I suspected it would be a problem. Even with that problem and futures lower overnight, there's still a significant divegrence in which the $USD will not confirm market strength here from yesterday afternoon.
A closer look shows several divergences , but the most noteworthy right now is in yellow, again from yesterday.
This is the intraday 3C chart of EUR/USD as you can see there have been several divergences, this is as of about an hour ago so there are some slight differences with the FX pair a bit lower, pressuring the market a bit lower with it.
This is TLT in blue vs the SPX, normally the correlation is typically inverse or opposite so when looking at the February cycle with stage 2 at "2" you can see TLT moving lower or bonds lower meaning yields higher which is supportive of the early stage 2 mark up as it should be in this area. At the next red area TLT is moving up meaning yields as a leading indicator are moving down and pressuring the SPX lower , soon we have a top and transition to stage 4 decline. Again in white TLT is falling, meaning yields are rising which is supportive of something like a market bounce as we put together other pieces of the puzzle and to the right we see the small base, it's just it almost looks like it missed the train last week with the Russell 2000 and now TLT is moving up again, yields down pressuring the broad market lower.
Hear are actual 30 year yields in red, I could have used 10 year or 5 year and the outcome would have been the dame. Yields move up in early stage 2 mark up just as TLT above shows, then go negative and do not confirm at the stage 3 top, soon the SPX is in stage 4 decline and retraces the entire head fake move. The Non-Farm Payrolls on March 6th send bonds lower/yields higher and I pointed this out last week as the market has a positive pull on it as yields remained higher than the correlation with SPX,
but since then, the two have reverted to the mean, actually as of yesterday since the March 6th Non-Farm Payrolls move in bonds.
That return to the mean is in yellow, thus the positive divergence in yields , helpful to the broad market is now gone. The R2K got to take advantage of it last week, but for the SPY/QQQ/DOW, the advantage is gone.
Here on an intraday chart you can see yields were slightly supportive at the SPX lows and accumulation areas that formed a small "W" like base, however since then, yields are leading lower and act like a magnet for equity prices, exerting downward gravitational pull on prices. All in all, nothing above looks good for the broad market near term.
Just to show you there's no difference, this is the same chart using 10 year yields rather than 30 and the outcome is the same, they are not confirming the SPX in green, but leading lower.
Looking at VXX, Short term VIX futures on a 5 min chart vs the SPX in green covering the entire Feb. cycle, this is the correlation without any inversion, it is roughly mirror opposite, yet VXX looks like it has either formed a flat base that could be accumulated expecting lower prices in the broad market or it is simply underperforming.
The charts for VXX such as the following suggest it has been under accumulation expecting a large, broad move lower in the averages.
VXX (Short Term VIX Futures) on a respectable 15 min chart are leading positive, the lack of upside that we'd normally expect to see as the market turned down at stage 4, looks more like VXX is putting together a larger base, expecting a bigger move than normal in the market to the downside and up in VIX based products.
UVXY which I closed at 10% gain on Friday anticipating some downdraft, is the 32x leveraged long ETF, but just because prices move according to the 2x leverage doesn't mean demand and volume are the same, thus 3C which is based on volume as well, would not give a confirming signal if it weren't there. Quite simply, while the ETF managers have to do their best to match the 1-day price move and keep the correlation, they don't control volume and volume is often a sign o demand or supply. The bottom line is this 30 min (longer) chart of the same product with 2x leverage confirms the chart above with a huge leading positive divegrence so YES, I do want to re-open the UVXY long.
This is the entire February cycle, you can see the start at 1/29-2/2 and the chart is XIV which is the inverse of VXX or SHORT VIX short term futures and as such, it moves WITH the market, thus the staging you see is the same as the market, stage 1, 2, 3, and 4. The confirmation you see at the green arrow at stage 2 on this longer 60 min chart confirms the same thing seen above on the 15 min VXX or 30 min UVXY chart. The leading negative divegrence confirms not only the VIX based ETFs above, but the broad market itself and the current bounce attempt is still seeing a deep leading negative 3C position like the averages, ETFs , VIX futures, HYG, and on and on.
This is a short term 5 min chart (intraday) of VXX and I have inverted SPX's price and left the VXX's price alone so you can see what should be the normal correlation. At the red area, VXX should be matching the SPX's price, however it's flat like a ranging base-forming price pattern and you can see the positive divergences above. Again, I suspect a large VXX long position is being put on in anticipation of a move much lower in the broad market, but this isn't news.
Here's the reason I closed UVXY on Friday, again SPX prices in green are inverted so the two top looking structures are actually bottom "W" base price formations. As the SPX moved lower Friday (higher on this chart because of the price inversion), VXX should have moved higher, but it didn't, this is why I suspected it wasn't done building a base and I might as well take the gains off the table and add the position back at better prices and better timing before it takes off to the upside,
Here's the pair intraday, again the SPX is inverted so the 11 a.m. highs on this chart are really the SPX's 11 a.m. lows, this is about when the lever pulling on HYG, VXX and TLT began. At the red area which are SPX intraday lows, VXX fails to make the highs it should have made and was already seeing intraday 3C divergences to pull it lower in an attempt to ramp the market. Again around 1 pm VXX underperforms the correlation and continues to right in to the close, yet the SPX closes red and on volume.
This is a chart of the pair intraday without any price inversion, SPY is green, VXX is red.
Even using the VXX lever and the HYG lever, the SPX still can't close green and there's some pretty large volume on the close.
Even in to the close with VXX moving lower, it and UVXY see intraday accumulation lower and XIV which is moving up sees intraday distribution, again another negative signal for the market overall here.
Commodities as I have shown, after years of distortion because of QE, are acting as a leading indicator again and I suspect right now it's based on global macro economics. There's no inversion in prices, commodities are brown, the SPX is green, This 5 min chart shows the area of accumulation in commodities to the far right which is January 29th through Feb. 2nd, or otherwise as widely confirmed in nearly every asset we've looked at, the base/accumulation area for the February cycle. There are some additional divergences to the left just so you can see commodities are working again as a leading indicator. Note the positive divegrence between commodities and the SPX at the base lows in which commodities lead just before stage 2 mark up is git in the SPX?
Along the same lines, the area I just showed you is the same area highlighted in yellow on the chart above, this is the February cycle with commodities calling the bottom, calling the stage 3 top and right now, calling a leading divergence or dislocation with the SPX, essentially a leading negative SPX divergence.
On a closer basis looking at the recent bounce base, commodities are leading and confirming the SPX's stage 4 decline until the base area for SPX where commodities are a bit higher and supportive, but it looks like since the SPX missed the rally last week with the Russell 2000, commodities have slipped lower as you've already seen above and are leading the SPX lower just as they led it higher in the Feb. cycle, confirmed at stage 2, led lower at stage 3 top and confirmed at the stage 4 decline.
They've had an amazing track record here without a single flaw and now they are pointing at lower prices for the major averages.
Here's where things get strange and I don't have the answer why.
This is the EUR/USD 3C divergences today, they were not helpful to the market, in fact the market defied them again...
Es (purple) vs EUR/USD once again closing above the EUR/USD correlation, as ES did yesterday leading to the overnight downdraft until they reverted to the mean.
This shows yesterday's close above the correlation (correlation can be seen to the left) and again today on a much weaker market.
However when I look at the pair using the single currency futures of EUR and $USDX, I come up with something interesting...
The 30 min $USDX chart has a negative divegrence suggesting the $USD see some downside pretty soon despite the relentless upside it has been trending in.
Matching the divegrence is the Euro with a 30 min positive divegrence.
If we took these two together it would point to a move higher in EUR/USD, by correlation that would mean the broad market as well,
the only problem is everything else above is arguing with this theory. We do have to remember that the EUR/USD correlation is rather new, I'm not sure we can expect it to last forever.
Another explanation may be the slow pace of QE in the EU as it has been widely expected the ECB would not have enough assets to monetize and their QE would be much smaller than anticipated. In addition, the $USD's dominance is being challenged by China's AIIB which US allies have recently joined including Great Britain, Australia is to join, Germany, France and Italy are also to join despite US pressure not to do so. This Chinese led International Development Bank will compete directly with the Washington based World Bank and will threaten the $USD's dominance as the World's reserve currency, so this may be on the charts as well given the recent string of US allies to leave the US o the side of the road and join China.
This 30 min chart of the $USD vs the SPX futures shows the inverse correlation, so even without an EUR/USD move, the $USD negative divegrence suggests a move higher in the Index futures, except everything above argues against that.
So I'm not really sure what we are looking at here and why, but it's on a 30 min chart thus far and must mean something for $USD led strength. Whether it effects the equity market, I'd suspect it would have some positive effect on oil and gold, both of which we see as being in a consolidation/pullback/accumulation area.
This is the 60 min 3C chart of the $USD, not quite as strong as the 30 min so maybe something changes, but I could not ignore it.
This is the 60 min Euro chart, while a slight positive, nowhere near as strong as the Euro, for that reason, I doubt this is a leak about the F_E_D which would imply a VERY dovish stance taken tomorrow.
The fact is, I'm not sure what it's about or how long it might last and if it triggers, it's just something I can't just leave out there, but whether it's ECB related, EU related (Greece), $US related or even China related, it seems to be pointing to something that pulls the dollar down at least short term.
Other than that, just about every chart we can look at for leading indications and cross asset correlations confirms each other and they are all negative for the market.
More to come in the Daily Wrap shortly.
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