Credit/Risk Indicators

Here's the Risk/credit basket

 Commodities intraday performed BETTER at that second bounce attempt this morning, remember in the last post I showed you a 3C chart where the second bounce had a better looking 3C chart, here's the answer as to why. Right now commodities intraday are at parity with the S&P. Remember the market almost ALWAYS has the heaviest gravitational pull on any stock and second the Industry group, that is why I say most traders have it all backwards as they look for stock picks, the first thing you should be looking at is the market, then the industry groups, that will tell you where the opportunities are and then look for specific stocks. In any case since August that has been very little rotation in industry groups, I said when we get closer to a trend we will start to see rotation and that is why we don't have such a strong emphasis on market specific trades, like trading the SPY long or short, but are now looking more specifically at stocks as rotation is starting to emerge again, rather then just everything moving altogether. In August-October, you could pick nearly any ETF, the SPY, QQQ, DIA, Financials, etc and they would all move together, that is starting to break up and rotation is emerging. You'll see an example of this below for today.

 Longer term as you have seen many times, commodities are severely dislocated from equities and this was our first hint that something was amiss in China.

 Short term today, high yield is outperforming the S&P a bit, which would still tend to suggest that a bounce is brewing, it's not a huge move, but it didn't sell off with the market today either.

 Longer term there is a severe dislocation, and you an see what happens when credit is not following an equities risk on rally to the left in the red box, the market drops pretty fast as credit leads.

 Yields look to be in sync today with the S&P, stocks gravitate toward yields.

 However over the last week or so, while the market has been somewhat lateral, yields have continued selling off.

 Longer term, big trouble in little China and China and the S&P. Look at the former dislocations to the left and what the green S&P did.

 The bigger picture between the Euro and the S&P, there should typically be nearly a 1.0 correlation (tick for tick) between the two, the Euro has been telegraphing weakness, leading to the break of $1.30, as far as the HFTs go, stocks are going to look expensive to the algos with a chart like this, arbitrage should send the market lower.

 The Euro recently, espeially today, has held up better then equities, there's a reason for this.

 Take a look at Bank of America, firstly it way underperformed the S&P during the Helicopter Ben phase of the market, formed a top and broke below it, because of liquidity, this is a stock in nearly every hedge fund's portfolio. Remember Warren Buffet's conversation with Obama and the news said it was because Warren was giving Obama economic advice. The next trading day Buffet bought $5 billion in BAC and BAC said they didn't need it. What do you think that conversation was REALLY about, especially given Warren's distaste in banking stocks? In any case, a few months pass by and all of the sudden that money that BAC didn't need, but welcomed, wasn't enough and they planned to raise more through an offering. Bottom line, BAC is in trouble and is a prime contender for window dressing (The Art of Looking Smart) as funds likely will not want BAC on their prospectus. Five dollars is the line in the sand for BAC. BAC is in trouble today and I would guess we are seeing window dressing in financials like BAC today, the sector is down and even decent financial stocks will feel the gravitational pul of a weak financial sector today.

 Here's BAC closer on a daily chart, remember that October rally? Look at the price formation in BAC, anyone who has studies the basic technical price formations knows this is a very bearish consolidation and ironically, guess where the break down point is? $5.00!

 I often warn that after the initial break from a top that we see volatility bounces and in this case, it would be a 'Kiss the top goodbye", that's exactly what XLF (financials) have done. I suspect there was a fair amount of institutional selling during the bounce, as a matter of fact we have seen it on 3C charts.

 As for the daily action, the financial heavy S&P is faring worse then the tech heavy NASDAQ, XLF has some gap support nearby, when that breaks, financials are done.

Here's my sector rotation map on a 1 min chart, the white trendline is today's open, look at financials in green at the bottom. This chart shows each Industry groups's relative performance vs. the S&P. Note Tech looks better since the opening-this is the rotation I referred to earlier.

Below is XLK (Technology)

 Note Tech hasn't sold off as bad as Financials or even the S&P and is also sitting right at some gap support. This means tech is a better place to be looking to add to shorts today as we want to add on some price strength. Take a look at AAPL below, it's actually green on the day and this is one that we have been watching since last week for a place to add.

 I could see AAPL moving to the $392 area, maybe even a head fake move above that, this is why I prefer a phased in entry approach right now rather then all at once, by the way, that's the same way Wall Street enters and exits trades as we have seen thousands of times, albeit for different reasons.

 HYG-High Yield Corporates are also showing relative strength today, which also suggests a bounce in the near/short term.

This is Financial momentum , it sold off at the second a.m. bounce attempt and is why the S&P which is heavier in financials then the NASDAQ is performing worse today. For the reason, just go back and look at the Financial industry group today.

 Over the last week or so, financials have seen a lot of pressure, which fits with what I said above about financials rallying to kiss the top goodbye.

Longer term, they are in ever increasing trouble and leading negative vs the S&P