CREDIT / RISK ASSETS / FX

 Starting with commodities in brown vs the SPX (always green), they are a bit less excited at this point where the sPX is correcting in a flag-like formation.

 The long term daily chart shows commodities in lock step with the SPX during 2010 and then they started to diverge at the top, they have been much less enthusiastic then the SPX as of late, for newer members, we spotted the early divergence in commodities and speculated that there were problems in China which were confirmed over the next two weeks when both their manufacturing and services PMI came in below 50, in other words, in contraction.

 Intraday High Yield Credit refused to post a higher high with the SPX yesterday and early today.

 The Euro in orange is bouncing a little, I'm sure it's the correlation that is giving the market a little bounce as well. Speaking of correlations...

 On a daily chart going back to 2008, you can see the Euro or rather more appropriately, the EUR/USD pair had excellent correlation with the SPC, that correlation fell off dramatically during QE2 as nothing mattered in QE2 except the mantra, "Buy the Dip" as Primary Dealers flipped bonds from Treasury Auctions to the F_E_D making billions in nearly risk free money, in some cases only holding an issue for a few days before flipping it at a huge profit, those profits went in to the market within 30 minutes of the POMO being concluded.

 More recently, the correlation started coming back and the Euro diverged with the SPX which led to the late July market decline, as of now, there's a deep dislocation between the Euro and the SPX. Some people think it is of little consequence, I think people will look back at this period and wish they had heeded the warning.

 Here's 3C on the Euro/FXE showing the accumulation after the Euro broke $1.30, this was a rally that we anticipated, not only because of 3C, but because of the concept of volatility shakeouts after a major support area is broken. We are now in the distribution and have been in a negative divergence in the Euro on the 15 min chart. Essentially, that is the 4 stage cycle, accumulation, mark up, distribution, decline.

 Intraday on a 2 min chart, the Euro is seeing a strong leading negative divergence, suggesting it will see downside shortly.

 The 1 min chart confirms the same, it is also leading negative here.

 High Yield Corporate Credit appears to be in lock step, it even showed a small positive divergence to the left at the white arrow, it is slightly negative at the time of this capture.

Looking out a little further and Credit has also failed to make higher highs, it's lower then it was on the 25th of January.