Risk/Credit Assets Update

For our newer members we follow Credit because credit leads the market and we follow risk assets because they should rally with the market in a risk on environment, for example, commodities should rally with the market if there's a true risk on environment, when equities rally and credit fails to confirm and risk assets fail to confirm, we have a dislocation between credit/risk assets and the market and dislocations are a good spot to short the market as it is something akin to poor breadth or a poor A/D line in a market rally. The recent market bounce has been dislocated from risk/credit. Here's an intraday update with some longer term charts showing dislocations and how the market moves quickly to close those dislocations.

 I don't know why, but yesterday I had a gut feeling commodities would underperform the Euro/market and here are commodities vs the SPX (green) intraday and they have underperformed and in fact continued to sell off even with a modest bounce in the market intraday.

 Longer term we can see commodities were positively dislocated from the s&P back before the October rally started, hinting at the rally, since then they have been negatively dislocated which have led to some sharp declines in stocks. Right now they are at their worst, a sign of trouble in China for sure, they are literally heading straight down and very dislocated with the SPX, showing there's no true risk on rally here which means the SPX should catch up on the downside shortly.

 Intraday High Yield Credit didn't participate in the opening po, but is seeing some modest buying as the market gains a little ground, note that credit moved up first while the SPX was still falling this a.m.

Longer term, there's a severe dislocation between High Yield and the SPX, you can see how the market responded to the last dislocation, it should make a similar move down shortly and n fact you can see it has already started as the SPX has rolled over.

 Yields act like a magnet for equities, this morning they continue selling off, despite the market catching a little bid.

 Long term rates were positively dislocated in white and lead the market higher, now they are severely negatively dislocated.

 The FX correlation is in full force as the market follows the Euro nearly tick for tick intraday...

 Longer term though, the SPX is severely dislocated from the correlation with the Euro, past dislocations have seen sharp moves down, but they were nowhere as big as this one.

 High Yield Corporate Credit is pretty much in line intraday, there's a slight negative dislocation, there certainly isn't any sign of risk appetite in Credit.

Finally yesterday we saw strong financial momentum vs the market, today that has fallen off a bit.

All in all, this is what I expected to see and the move remains totally Euro based because of the breach of $1.30 and the subsequent volatility associated with that breach.