Market Update- Wall Street Arbitrage

This is a bit of an interesting update and this shows you the power of looking at things such as currency pairs rather than looking at MACD Histograms like the rest of the crowd. There's no edge in knowing what everyone else knows, the edge comes from seeing what everyone else missed.

Here are the 4 main averages, all 4 did the exact same thing. Recall one of my earlier posts today was that the EUR/USD currency pair is firming up. I use the EUR/USD because of all the currency pairs out there, this one carries the most weight in the US Dollar Index, 50% to be exact. That means that $USD weakness (which helps most risk assets from stocks to oil) can be tracked easily using the EURO as a proxy. If I were to use the $USD, there would be an inverse correlation that makes divergences hard to see, using the Euro, you get roughly the same $USD information, but it has a direct correlation with stocks, Euro up/Stocks up and that correlation is much easier to view when looking for divergences. You should check it from time to time and make sure the $USD is doing what the Euro suggests, but for the most part it is an easy way to view correlations. Traders don't give enough credit to what really moves the market and currencies are a big part of that.

On 1 additional note, I have to say, I'm surprised the market is holding as well as it is after the Spanish auction and Initial Claims missing, if I had to guess, I'd say the SPY $140 Friday pin is probably the cause as they can't let the market slide too far from that area, thus there's likely some Wall Street support.

 The comparison symbol on all of the charts is the Euro in white, the index in green. Here's the DIA/Dow, note the big shakeout in volume after 10 a.m. on a shakeout move, also note the Euro was making a higher high there, this is dollar weakness, which is helpful to the market. If traders saw this, the probably would not have been shaken out. This leaves a fairly good size position of shares Wall Street could accumulate as someone has to take the other side of the trade.

 Here the 5 min intraday chart shows such a positive divergence right at the shakeout, why wouldn't there be a positive divergence when Wall Street knows the $USD is weaker at this second dip?

 The longer term trend though is still very much intact since we first saw accumulation April 10th, there has been a persistent leading negative divergence indicating selling in to any strength or shorting.

 The same happened in the IWM, it made a lower low, shook out longs as the Euro made a higher low, why would they not accumulate this to support the market?

 IWM intraday positive divergence at the shakeout.

 Longer term IWM trend since April 10th

 QQQ

 QQQ positive divergence on the shakeout.

 QQQ longer term trend.

 SPY new low shake out, again higher low in the Euro-weaker dollar.

 Again, Intraday is shows a positive divergence right at the shakeout.

The longer term trend since April 10th.

So far so good for our analysis and expectations.