Has anyone been watching this thing unfold day by day? I think Greece should be the market's leading indicator. If you have any political ambitions, go to Greece; apparently the bar is EXTREMELY low. Honestly, without exaggerating and most of this stuff you couldn't even make up, one day the Greek government is promising to destroy the Troika, that they will not even consider talks about the bailout, the next they are signing whatever is put in front of them and even written in their names by the EU and in a worse position than when they started, then they are defiant again or throwing ideas like arming tourists with video cameras to catch Greek tax cheats, the idea being no one knows who might be a "non-profffesional "Tax spy", which the EU? shoots down as the baloney it was, then they are defiant and will default inside the EU without an exit, then they are raiding the Greek pension fund to make a Trokia/IMF payment with every nickel they can find under the couch, and the most recent that just knocked me off my rocker is the Greek government demanding war reparations from not only World War 2, but back to World War 1, a Century ago! This despite the fact that Germany made reparations decades ago to which Greece signed on and agreed and accepted payment. I can see why the latest poll out of Germany, for the first time this week has more Germans wanting the Greeks out of the Euro than in with a nearly10 percentage point jump over the previous week. I'm sure you caught the CNBC retort from the Greek Finance minister when he was asked if he is now a liability for Greece and hois well thought out, childish retort was "Are you a liability to your network?" before storming out of the interview. This is amateur hour to the point in which I suspect the government of the Bahamas would have been more credible and better functioning in Greek shoes.
Just as background and big picture perspective, the Greek bailout was never about saving Greece, it was and is about saving French, especially German and other EU (and non-EU) banks which would sustain catostrophic losses if Greece were to default, this is why the Troika and Germany could not and would not allow anything more than a 4 month extension of the bailout the Greeks promised to walk away from. However when you can't collect taxes in your country, every industry is falling apart and no one in the world will export goods to you like say a new TV from Japan, I guess you get desperate and like people who are not doing well in trading, they jump desperately from one system to the next, never spending more than a month or so in any of them in search of what we call the "Holy Grail of investing" which doesn't exist. You can probably see the parallels and how all of this is rooted in inexperience and huge emotional swings.
I say this in all seriousness, watch the situation on the EU with Greece; this is bigger than the Lehman moment for the continent and I suspect it may very well lead to the 3rd World War on the continent and Greece will not be alone against the rest of the EU, by then either Russian or Chinese or both will have ports and boots on the ground. The EU is obviously thinking about this outcome as well as a new EU army has been proposed seeing NATO as being insufficient to guard the EU against perceived threats.
As for Leading Indicators, most are telling us the same thing we already forecast. First there's gas in the tank for the bounce this week and I believe it will run right up to the F_O_M_C meeting policy statement on Wednesday at 2 p.m. or thereabouts.
I know you've already seen these charts, but just to put things in perspective so nothing is given more or less weight than it deserves...
Index futures gas in the tank, distribution in to higher prices and Russell 2000 relative weakness...
Again, this is the gas in the tank, the bounce I suspect runs up until the F_O_M_C.
Just to show there's confirmation and there's migration meaning the divergences are stronger (either have grown stronger last week or are growing stronger now and that includes both positive and negative divergences)...the 10 min charts...
ES has a positive divegrence and is pretty much in line, even though we have already seen distribution on intraday timeframes, it needs to burn through all the gas in the tank.
This is how we understand and use multiple timeframe analysis to our advantage in forecasting and trade set-ups. For instance, with such a strong negative 60 min chart, I want to trade it, but I don't want to trade it from the long side, not that it can't be done, it's just not with probabilities. I want to use any price strength to do what smart money has done, sell/short in to it, that's with probabilities and using multiple timeframe analysis to our benefit, it requires some patience and some intestinal fortitude as the entries will be against the prevailing price trend, but hopefully the fact that you knew what to expect nearly a week in advance gives you the confidence to take the analysis seriously as it proves itself.
As for Leading Indicators... You'll see what the tone of the market is both short term and long term (as well as intermediate). You'll see why I'm looking at the highest probability trade plan the way I am. You'll see why certain positions were closed like UVXY last week as I could have closed it on at least 4 other occasions and chose not to until now and why. There's a lot of information here and a lot of confirmation, like last week, the Cross Asset Correlation is a thing of Beauty, as if it were created by nature itself and the same applies for the charts above and below.
However, below when looking at today, there's no more confirmation and this is largely pointing out the problem of relative dislocations between the averages. Rotation among industry groups is HEALTHY in a normal market, however big differences among the averages like last week and most of today, are the exact opposite and are warning signs.
If you have doubts, look at HYG through other timeframes, it works just as well intraday as a leading indicator as it does on a 5 min of 6 hour chart.
The 10 min chart shows HYG SUPPORTING the market in its stage 2 mark up mode from the Feb 2nd base, then at stage 3, HYG leads to the downside, how long is it before the SPX in green follows it lower?
Also locally, note the confirmation, even though HYG is in a leading negative position vs SPX, at each of the green hash marks and then note the lack of confirmation today at the yellow hash mark.
HY Credit or a risk on asset is not willing to chase risk, that's a problem and a leading indication of things to come. There's much more to it than simply risk on or off, Credit in the Corporate sector and its movement has a lot to do with equities , especially when they are using credit (issuing debt) to buy back shares to support stock prices as insiders slip out the back door at the best prices they can get.
The next logical move for HYG has been drawn in with a blue arrow to the right and a red hash mark, a lower low as the trend has been and already in a primary bear trend or bear market.
The SPX/market will follow credit.
You may have seen over the weekend that a Texas Congressman has written the F_E_D and called the inquiry in to the leak of sensitive information to two sources including the Wall St. Journal (likely Hilsenrath) during 2012 , a "Criminal Investigation" for the first time ever . This was an investigation handled by the F_E_D's internal General Council which dropped the investigation at the behest of F_E_D members. Inquiries have been made by Congress oversight committees as to the progress of the investigation, but have not received a reply from Yellen or the F_E_D which was brought up by Democaratic Senator Elizibeth Warren during Yellen's recent semi-annual Humphrey Hawkins congressional testimony.
The latest letter was from Texas Republican, Hensarling in which he called the investigation now a "Criminal " investigation.
Note the divergence between VXX (blue) and SPX inverted prices (green). VXX underperformed suggesting near term market outperformance.
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