Risk Assets Update

Here's where we stand, on the 10th at the white arrow, the break of both SPX support and the 50-day ma told us that we should be looking for a volatility shakeout, this would take out the newly arrived shorts, later in the day we saw the 3C evidence for just such a bounce, which is hard to pull off with the macro market climate becoming more hostile, but the market has volatility on its side. I said back then there isn't much point in running such a move unless it can break back above the resistance level the SPX is at RIGHT NOW. These volatility shakeouts like what we saw in XOM are the trend, we stick with the trend until it ends, so the assumption we are still working from is that the SPX should move above resistance (which is exactly where we are).

CONTEXT for ES is supportive right now of higher ES prices as the model is higher than ES itself, this model is proprietary, but includes Credit, rates, currencies, etc, all of the same things we look at in the risk layout. A nice clean signal (although with volatility and market choppiness like yesterday with the averages all over the place, I suspect this will be one of the more difficult calls) is what we want to see with the model moving below ES.

 Intraday, commodity momentum "seems" to be in line with the SPX (green).

 A longer term view shows commodities are lagging, I don't regret closing the USO position, I'm still upset about the USO calls not being filled yesterday, but that's part of the market. I still take this as implicit signs of weakness from China. FXP is probably worth a closer look again.

 Since the April 10th bounce call, commodities through all the volatility aren't any better off then they were on the 10th with regard to momentum and in real returns.

 I added the Euro in blue to the mix, commods are lagging the Euro, the SPX is a leading the Euro. As I mentioned yesterday, once Wall Street puts a cycle in to motion they rarely fail, they put too much money and have too many plans for the cycle to let it fail and we have seen them step in several times to support this bounce which is just further confirmation that market head winds are really pushing against the bounce.

 High Yield Credit had been pretty much in line with the SPX and at times leading it, today it is lagging, this is the kind of divergence we want to see moving toward the end of a bounce, the Credit markets are much more in sync with reality than equities are, but just look at that SPX momentum today, purely manufactured by Wall Street.

 Yields are another leading indicator that have been supportive or in sync with the bounce, now they are starting to divergence, again this is what we want to see to better judge timing and tactical entries of short positions. I suspect this may end up being a much deeper divergence than previous reversals for the reason of the volatility shakeout.

 The $AUD is a great leading indicator as currencies go, it is moving up, but doesn't have the same momentum as the SPX, we will see shortly if this becomes a negative divergence.

 Intraday the $AUD momentum looks pretty good so I'm not ready to call a top here, I want to see the $AUD moving the opposite of the SPX.

 I'm using the Euro to look at what the $USD is doing as the $USD's inverse relationship is more difficult for most members to see divergences. As mentioned yesterday, the Euro was supportive of the market, meaning the $USD was a bit weak, supportive of the market. However we do see a lag today as the Euro seems to be a bit range bound, the noon time trend of $USD weakness has been a fairly consistent theme so we will see if the Euro catches up shortly.

 HY Corp. Credit remains in a shakeout move, it is exceptionally cheap compared to the SPX and a reasonable choice for a risk on move, it appears to be supportive of further gains in the SPX/market, we want to see Credit turn and run the other direction as far as timing goes, although as I mentioned earlier, I'm already building some positions starting with XOM earlier today.

 Credit intraday broadly in sync with the SPX.

 Energy rotated in early today, I sold USO calls and now the momentum has started falling off.

 Here is the rotation I've been expecting, Financial momentum is falling off as expected.

 Here is tech's momentum, this is the rotation from financials to tech I've been looking for, as mentioned yesterday it wasn't likely to happen without AAPL so the AAPL positive divergence along with Tech and the Q's all gave a good signal confirming a gut feeling.

Here is today's sector rotation with yesterday afternoon's , clearly financials are falling off, defensive sectors like Utilities, Healthcare and Staples are falling off as they should with the SPX moving, Energy came in to rotation on the consolidation below resistance yesterday that broke out today. Tech is the notable sector coming in to rotation and I believe it will be the last sector to rotate before the bounce ends.

Bottom line, this is definitely the trickiest bounce of the last 3, but it appears we have more to go before we can call it a day.