RISK ASSETS/CREDIT/CURRENCIES UPDATE

 Last night I pointed out how the Context model for ES had gone even deeper in to a divergence at 11:15 or so, since then, it's far deeper, this is a huge dislocation between what the model considers fair value and where ES is trading now, which would mean ES is still EXTREMELY rich to the implied fair value which is figured out by using an amalgamation of different risk products from credit to rates, volatility, implied volatility and much more. CONTEXT is a proprietary indicator, but one that I have seen work time and time again as ES and the model become divergent like they are now, and then almost always revert back to the mean of the implied value of the model. This would mean either the model would have to see significant appreciation in the assets that make it up or more likely, ES would have to drop quite a bit. Usually, ES comes to the model and our own risk indicators would suggest the same and have been for some time.

 The $AUD intraday appears to be in line with market action, this after negative divergences recently.

 The divergence between last week's early bounce and this week's was even more divergent (lower).

The trend in the $AUD, after being in lock step with the SPX through the early part of the rally, is quite clearly changing, which effects carry trades, which effects the market.

The $USD (by way of the Euro as an inverse proxy) is pretty much in line with price action thus far.

In the red box is the bounce yesterday afternoon that I showed you last night that had no correlation whatsoever to the $USD and therefore was an effort to reach VWAP as I demonstrated, however this is a warning signal as well as the markets typically fall back to the arbitrage correlation.

High Yield Corp. Credit didn't want to play along with the market late yesterday and put in a negative divergence, it's still tracking lower today than the SPX, suggesting more downside for the SPX.

Here's credit not biting on this week's bounce, this was a significant negative divergence and fit exactly with what we expected to see as early as last Wed/Thursday, a quick and sharp bounce with negative divergences (distribution) throughout.

The divergence in Corp. Credit between last week's early bounce and this week's was also much worse as Credit was more interested in unwinding positions than chasing short term momentum. As you can see, Credit here is still dislocated making a new low below anything on the chart.

Longer term, Corp. Credit certainly looks like the position is being unwound and as I mentioned yesterday, looks to be headed to a new regional low.

Intraday momentum, not % gains, shows XLF recently seeing a bit more positive momentum than the SPX.

Tech is looking as if it has less momentum.

 As pointed out last night, commodities stayed with the $USD correlation and did not follow stocks higher (to ES's VWAP)


 The regional trend in commods vs the SPX is clearly down

 Long term, commodities signaled the 2011 July decline and they are significantly dislocated, as mentioned, we saw weakness in China before anyone based on commodities. The post this morning about exports faltering all over the world, again look to the huge dislocation in commodities. If commodities are not being bought to produce goods, than it makes sense we are seeing all of these record and near record breaking declines in exports everywhere, again, commodities signaled the health of the economy while the US gubernet has been pulling the wool over everyone's eyes with seasonal adjustments to make the economy look better than it really was as we see clearly now as we move out of the seasonal adjustment period.

 High Yield Credit has sold off near the day's lows

 The several month long range in HY credit has been a warning as well, the dislocation now is serious, but if Credit players (think smart money) wanted to generate big returns, HY credit would have been rallying with the market, the Credit markets obviously have been more keenly aware of the danger that this house of cards comes tumbling down very suddenly and unexpectedly.

 Sector Rotation today shows the defensive sectors in rotation as you'd expect, Financials have show a little recent momentum vs the SPX's momentum. Technology is significantly off as shown above on the XLK/SPX chart and Discretionary is faltering badly.

Since yesterday, Financials are way off, the Defensive sectors are way up, Basic Materials are down, Tech is way down and Discretionary.