CONTEXT & Credit/Risk basket

 CONTEXT is showing ES pretty significantly rich to the model, which is based on risk assets that usually rally with ES including Credit and other asset classes. I have my own layout breaking these down to see the particulars.

 High Yield Credit in general has sold off today as the market moves higher recently due to a Euro/USD correlation, this isn't bullish for the market when credit fails to confirm ES as Credit generally leads being a much bigger market.

 The bigger picture shows a dislocation between Credit and ES, these dislocations usually revert to credit and often are good short entry points and also give us a read on the vitality of the move in equities, here it is an unconfirmed move as the credit markets refuse to participate in the rally shown here.

 Earlier the Euro headed down before equities, the correlation between the two brought equities down in the morning, since the European market has closed, the Euro is bouncing slightly which is lifting equities as well as most commodities which have the same positive correlation.

 Longer term the correlation is severely dislocated, part of this may be due to the investor (in my opinion myth) that the US can decouple from the global economy. I think this will be shown to be untrue and what we are seeing is a lag in the US rather then decoupling. As I said last week, if the global economy goes down the toilet, who does the US export to? The US?

 Rates/Yields act like a magnet for equities, they have also recently been selling off as the market remans largely lateral.


 On a larger scale, you can see the relationship, although 3C anticipated the October rally, so did yields as they were trending up while the market was making its low. Since then there have been numerous smaller examples of yields dropping first only to be followed by a drop in equities at each of the red arrows. We are building a much larger longer term dislocation that (if it follows the pattern) would suggest a major adjustment to equity prices.

 Here's the recent trend in Corporate Credit, an obvious downtrend while equities remain lateral, it looks very much like a large short position in equities is being put together as risk in other assets is in the risk off mode and de-leveraging.

Interestingly today (recently over the last week financials have stayed in sync with the market or led it) Financial momentum on this custom indicator is VERY flat and not participating in the equity intraday bounce.