Since I have received 2 emails about the Twitter (StockTwits) stream being full of talk about concerns regarding market breadth (something I posted well over a week ago), I figured I'd show you a quick chart that sums it up neatly.
First what is market breadth, it is more or less confirmation through multiple different indicators that either confirms a move (up or down) in the market or calls it out as being suspicious, it depends on the degree of the divergence in the market breadth indicators. I want to say in essence, but as my market breadth post showed definitively, the market can be manipulated higher even while a majority of the individual stocks (components) are falling apart or trading lower, it is because the way the averages are weighted, the Dow 30 for example is not weighted in such a manner in which each of the 30 stocks have equal weighting; in fact IBM accounts for the highest weight at 11.7% while Alcoa and Bank of America account for the least at .59% and .49% respectively. However this condition usually can't keep up long.
I use this proprietary indicator that uses % change at various levels to show market momentum and when it is failing. Unlike MACD there is no moving averages used (whenever you apply a moving average, you lose data).
Here is the indicator just before the July 18% market sell off.
Here is the same indicator now, however I would say this is a worse reading as the above chart is between two relative price levels (they are essentially the same), whereas the chart below is in to an advance.
In January stocks averaging 5% weekly advances were around 70%, now at about 22%. This is only 1 breadth indicator, but it sums up breadth fairly well.
Now, the post...
These are all relative comparisons against the SPX always in green, commodities have fallen off today.
Here is a commodity index in green vs the $US dollar, there's a long standing historical inverse relationship between the two as most commodities are traded in $US dollars. When the dollar advances, commodities pull back (the same is usually true of stocks as well) and vice versa. Yesterday's JPM announcement saw that relationship briefly broken in red as both commodities and the dollar advanced.
Commodities relative performance since the bounce started...
High Yield Credit selling off today
A close up of the intraday Euro/SPX relationship, note the Euro divergence early in the morning and the resulting move in the SPX.
Since the bounce began...
This time I also included the $AUD as it is the carry trade used to finance risk on rallies, the $AUD falling shows the carry trade is being taken off, the $AUD rising is the carry trade being put on. Again note this morning's divergence and the resulting SPX action.
Since the bounce started, it looks like the carry trade is being taken off.
Longer term before the bounce started, the $AUD started selling off leading to last week's Dow drop of approx. -1.5%. The trend here looks pretty obvious.
High Yield Corp. Credit today is not performing well vs the SPX. We watch the credit markets not because we trade them, but because they are huge and almost exclusively traded by smart money, as the saying goes, "Credit leads, equities follow".
This is XLE today, it has been the biggest laggard of the 3 most important industry groups (Energy, Financials and Tech).
Energy vs the SPX longer term.
Here's the downtrend that started in Energy as well as Crude around the same time, the area in yellow was questionable as to whether it is something changing in the trend or just a counter trend bounce which are common and to be expected. It appears it is a counter trend bounce.
XLF momentum intraday , you can see why the second positive divergence in the market formed at the white box.
XLK intraday
While I was writing this the SPY reversed off the last intraday positive divergence.
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