I didn't have time yesterday as the MP is my last priority and members/updates are my first. However adding in this area to some shorts is starting to become more attractive to me, some reasons outlined last night, and some from today's trade which should have seen strong follow up buying, instead we are slightly down on the day, which isn't surprising given how the market reacted to the last Multi- Central bank intervention (2 days of rally and then a steep decline) as the half life of all interventions, whether it be the ECB or multiple Central banks acting in concert, is noticeably shorter then it was say 2 months ago.
The knee jerk reaction eventually gives way to the reality that another band-aid has been slapped on the problem and the fact that the band-aid had to be used, tells you something about the condition of the market above and beyond what we already know as the CBs are certainly way ahead of the curve.
The newly proposed "Redemption Fund" that was out in the main stream press (I haven't had time to understand exactly what it is other then the fact that it does not violate the German constitution) seemingly has not been well recieved in Europe as Europe's close was rather weak.
ES moved to the day's lows at the European close.
Furthermore, the sovereign yields and spreads that improved dramatically today, slipped back lower toward the close.
Commodities moved lower in to the EU close as well.
Finally the broader Context Index continues to move lower, which supports much of what we have seen in our own more specific risk/credit indications which will update below.
ES (S&P Futures) in orange remain elevated above the broad risk asset model (black), these divergences pretty much always revert to the mean so it appears ES is overvalued and due to pullback to the model, however as selling picks up it often overshoots the model.
Our models...
Here's the long term High Yield Credit (hourly), each dislocation in red has been followed by a drop in the S&P (green on all charts) and there's a very clear dislocation now. We started supplementing analysis with risk and credit indicators as they give a broad view of what "should" happen in a risk on rally/bounce and what actually is happening, it's somewhat synonymous with weak breadth in a rally or bounce.
As for intraday there have been several moves lower in credit while the S&P has ignored them.
Since commodities have performed relatively well, I am a little surprised to see this hourly chart's dislocation on this bounce. Even without looking at the oscillator (which help as sometimes scaling issues make the divergences between the two assets hard to see-it's still not a perfect solution), commodities are clearly underperforming the S&P as is especially apparent in the red box to the far right.
I showed you earlier several commodities not performing well today including copper and oil, two of the recent out performers.
Relative to the Euro, there's a decent dislocation as these two assets have a fairly high correlation (move together). The chart above would suggest that the S&P is over-valued here. I'll try to figure out how much so by the Dow correlation.
High Yield Corporate Credit also performed fairly well early in the week, but has since dislocated as is very obvious in the red box to the right (price window). Note each of the past dislocations have seen the S&P move down shortly after as credit tends to lead the market and thus the reason we follow it more closely.
Intraday this is probably the biggest shift we have seen all week in HYCC. I'm always sensitive to changes in character in the market.
In white you can see the weak spot of this oscillator as it works on Rate of Change and when rates don't move much as they haven't in the white window, the rate of change indicator remains flat, even when there's a pretty serious dislocation (it's still in the works).
The intraday chart displays this best as rates are flat in the white window, the oscillator doesn't move, but to the right in the red box, rates are moving and the dislocation becomes apparent. So far this pretty much just effects rates which the market tends to gravitate toward.
The financials momentum indicator remains at a serious dislocation on the recent bounce (this is an hourly chart, the bounce is to the far right). This isn't surprising as financials are quickly becoming a problem again.
Intraday financial momentum has leaked lower after a strong close yesterday, had my opinion about that, we'll see how today's close pans out.
Lastly the EUR/$USD has seemingly hit resistance at the $1.35 level which has been a key level.
All of this taken together, I'm pretty likely to add to short positions on the strength this bounce has offered, this is what we were looking and hoping for last week, it's here.
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