Levers

I'm doing my morning rounds, I just saw USO knee jerk on inventories so we'll get to that after the massive build in API inventories after the bell yesterday. The VIX also flash crashed momentarily near the open this morning...

VIX Flash Crash this morning...

TICK has been moving, but nothing too extreme.

NYSE TICK since the open 1 min.

I'm more interested in the levers, HYG, VXX (and its derivatives) as well as TLT as there's been more curve flattening since last night between the 2 year and 30 year.

The very near term indications on the 3 SPY Arbitrage assets are interesting in that they seem to be calling for more near term volatility which wouldn't be much of a surprise as we get a F_E_D/F_O_M_C sponsored knee jerk reaction about 90% of the time they have an event.

However I've always advised with 3C and other indicators, "When you aren't sure, go to longer term charts", they reveal more trend and higher probabilities for near term choppiness or volatility in shorter term charts.

The quick reference on the 3 assets is generally HYG up / TLT down / VXX down = market up. Or HYG down, TLT Up and VXX Up= market down.

Thus the short term charts may be left overs from the earlier anticipation of a solid bounce that seems to have just fallen apart in terms of timing and the market showing some degree of relative performance, or they may still be reflecting volatility and choppiness ahead. Unless the F_E_D has leaked and that information is discounted in to the charts, it may not matter, as the F_O_M_C is by far the major market fulcrum today which will easily run over anything below 5 min charts and depending on how big of a surprise they may deliver, can run over charts even longer although that's usual;ly less likely or the market finds a way back to those charts after the knee jerk is over.

In any case, I don't want to confuse you too much on speculation, lets just look at what we have using multiple timeframe and multiple asset confirmation.

 VXX Short Term VIX Futures is in line on the 1 min chart, thus closing UVXY for short term gains made sense from last Friday, but there's no extremes here, that could be because there's no solid short term opinion, but typically we'd see some stronger hedging to protect long positions against unforeseen events going against long positions. I wonder if there isn't a lot of hedging because there's not a lot of need by pros to protect longs, after all some of the biggest funds or most respected like Appaloosa sold 60% of their equity positions in Q4 2014 alone and they had been as Tepper put it,  "Selling everything not nailed down" since a symposium in May of 2013. $ trillion dollars in QE is a lot to unwind out of a market, it doesn't happen over night. Soros is another with his last filing from Q4 2014 showing he increased his SPY put position by 600% in the quarter to the largest level he's held since Lehman.

Of course I'm just speculating , but I'm also going by experience in front of these events which usually will have pros hedging any long risk they may have just before a wild card event.

XIV is the inverse of VXX and moves with the market, it's 3 min chart is in line with a very slight leading positive divegrence.

However there's a theme and it's along the indicator advice of "If you are unsure, go to longer term charts".

 At 10 min charts there's a dramatic, solid and confirmable change such as UVXY (2x long VXX/VIX short term futures) which shows a leading positive divegrence.

Like UVXY 10 min above and VXX 10 min (not shown), the stronger 15 min VXX chart has a very clear, chart popping leading divergence and in what I have suspected has been an accumulation range. Normally with a range like this that's fairly obvious we'd expect a head fake stop/run before a transition to stage 2. Remember VXX up= market down. As for a head fake move? I can't say I have evidence of it and I am not sure it would even matter if the F_E_D says the right or wrong thing today.

However this chart is not so easily dismissed as noise or volatility, there's intent there.

XIV is the inverse of VXX and usually moves with the SPX or market, it has shown a little better relative performance and I suspect for the same reason VXX has shown a bit weaker relative performance, to create a range in which XIV long positions can be sold at the best price, like VXX positions being picked up at the best price.

Either way, VXX, UVXY and XIV all confirm each other on 10+ min charts and they all point to lower prices in the market. It doesn't look so much like event risk hedging, it looks more like position taking.

 HYG / High Yield Corp. Credit which tends to lead the market led the ,market to the downside and in many cases pulled the averages low enough to retrace all of the February cycle's head fake move/failed breakout above the 2015 range. Recently though on this 1 min chart there's a clear positive divegrence over 3 days or so, sort of along the lines of short term VXX.

 HYG's 5 min chart shows the 2 trends at once, a larger leading negative trend that sent HYG lower with the market right behind it as HY Credit typically leads and stocks follow, thus the reason HYG is one of the best leading indicators we have.

The minor trend on the chart is a positive as well. This formed about the same time as the positives last week of which only the Russell fired, this week the SPY/QQQ got in a day of upside in rotation, but a day was it. I suspect this is left over from that planned bounce that has maybe gone a bit awry.

 What I do know is just like VXX/UVXY/XIV above around the 10-15 min timeframes which are by far stronger, is leading negative which is confirmation of every 10-15 mi chart above and below.

 TLT (typically trades opposite the market (20+ year bond fund). Remember yields move opposite bond prices, thus lower bond prices=higher yields=higher market prices typically.

This negative 1 min divegrence is quite small not only on the timeframe, but as far as length of time.

The TLT 3 min chart is similar to the VXX / HYG charts in the same timeframe, slightly negative on a relative basis.

However once again, move out to the intermediate term charts and...

TLT 15 min has a large base and leading positive divegrence, even though I'm not so sure about bonds longer term like last year. Once again, it looks like the market is either ready for some short term volatility or is in the midst of confusion or maybe even a transition.


The only thing that looks clear are these stronger, longer term signals all pointing to a lower market, I suspect that would be the case even in the face of a positive F_O_M_C initial knee jerk reaction.

However additionally since I've been looking at these charts, Leading Indicators seem to be slipping so I'm going to get a look at those as well. You may recall from yesterday, they were probably the strongest signal calling the overnight weakness in Index futures and beyond.

As for replacing UVXY, it's more or less a bonus position, not a core position so if I see a good opportunity I'll take it, but it's not necessary to follow the longer term signals that are already taken care of with trend positions (mostly short). I would however, love to have UVXY back as long as the charts are showing a strong edge.