Here's a look at our own tools that are similar, but more specific then CONTEXT. As I have been saying for a while, there will come a time in which the divergences will revert to the mean.
So here's a look at the longer term and some shorter term indications.
Remember the huge divergence last week between the ES CONTEXT model and ES, with ES being significantly over-valued? You can see some of it to the far left of the chart , ES has caught up short term or reverted to the short term mean in the CONTEXT model.
Commodities intraday have also reverted to the SPX (SPX is always green on these charts).
A bit longer term through the area of lateral volatility, commodities have been selling off at a faster pace then the SPX, this I have viewed as partly problems in China and mostly problems with this rally as risk assets like commodities have failed to follow the exuberance of equities.
Even longer term, you can see how commodities moved in sync with the SPX though 2010, they faltered in 2011 before the 20% move down and have really not participated in this recent rally at all. Again, this says a lot about China as much as it does the health of this rally in the market.
"Credit leads, equities follow"... Here as you have seen many times, High Yield Credit has failed to make a higher high since Feb. 6th!
Near term (intraday) credit warned Thursday as HY Credit which should rally with a risk on mood, did not. Today there's a rough intraday reversion to the mean with HY credit mildly supportive of some backing and filling. We don't have European data today and there is little on the US economic docket, however the "QE Hope" crowd will be looking forward to what Bernie has to say tonight around 7:30 p.m. in Atlanta.
3C on ES this morning has been pretty accurate, there was a small positive divergence at the white arrow sending ES a bit higher intraday and then a negative divergence sending it lower. As ES and the SPX hit support again right about now, it will be worth watching for intraday divergences. As mentioned last night, the QE crowd will try to spin the NFP miss in to a QE positive event and as I said last night, there seems to be just too much damage already done for them to take the market very far, however the market always moves in over-reactions and as I warned last week, volatility will get even more extreme then it already is (remember my volatility channel last week as an example showing intraday volatility picking up by 50% since February).
I compare Yields to a magnet for the market and as you can see the SPX is close to reverting to the short term mean in Yields, longer term there is still a huge dislocation and the SPX would have to move significantly lower to meet Yields.
Intraday Yields aren't giving much of a signal at all, there's not any real pressure here so I would call this generally neutral which would be helpful for any market backing and filling in to the gap.
The $AUD has been an excellent leading indicator for the market, intraday it does look a bit supportive of the market in general, this however is far removed from the longer term trends and today's move down shows that these divergences in these risk indicators are real red flags and point to significant downside.
Longer term the $AUD tracked with the rally, it then went lateral and then reversed trend, putting it at odds with the market, it suggests quite a bit of downside for the SPX in the coming weeks.
I don't know if the BOJ will react to the rising Yen, but as mentioned, there's an inverse correlation between the Yen and the market. Generally BOJ interventions don't have much of an effect, but the rising Yen is a clear sign that carry trades have been taken off and are likely still being unwound, that is probably mostly why the Yen is appreciating.
There's some slight weakness intraday in the Yen, this is a little market supportive on an intraday basis and considering where the SPX is sitting in relation to support.
Finally High Yield Corporate Credit has been sounding the alarm bells for some time. Intraday there's been a reversion to the mean between HY Corp. Credit ad the SPX, however...
As I have shown you, HY Corp. Credit has been selling off, waiving a bright red flag for equities and as suspected, it is making a new lower low which I thought we'd see as of last week.
Here's the longer term view and you can see why the saying, "Credit leads, stocks follow" seemingly holds true, it has many times in the past. The divergence between this High Yield product ad the SPX has been a glaring red flag and still suggests equities are significantly overvalued and have a ways to go to reach the mean with Credit and that's assuming credit doesn't continue to sell off as I'm sure it will.
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