OK, lets dig in to the short term and the longer term psychology of the market and what is driving it, as well as where some opportunities are to be found.
Near term commodities were a bit stronger in to yesterday's close than the SPX (all indicators are compared to the SPX which is always green unless otherwise specified). Today Commodities have a bit better relative momentum than the SPX, I'll show you why.
As you can see this is a much longer timeframe, Commodities are a risk asset that "should" rally with the market if the market is truly discounting good fundamental economic data, I have been skeptical of the entire 2012 rally because of the seasonal adjustments in the economic data which distorts them and does not allow and apple to apple comparison as well as the sub-indicies in the economic reports that few look at that have shown the hints of a declining economy despite the head line economic report. If the country was doing better (or the world) commodities would have rallied with the SPX to a similar extent. When we first saw commodities weakness I suggested China was in trouble, a few weeks later their Manufacturing and Services data proved our theory correct. As the SPX has chopped sideways in a lateral top, commodities have declined, showing the immense risk in the market as stocks are virtually hanging off a thin ledge that could break at any time, thus the reason for building short positions lately.
Commodity performance is now below the December and October lows of 2011.
Here re commodities vs the Euro, they track very closely to the $USD and the Euro is an excellent proxy so they have had better performance today in recent momentum because of the arbitrage FX correlation while stocks have been more tentative.
The $AUD is an excellent currency as a leading indicator, it is tracking much closer to the SPX, again stocks are a bit more tentative, while commodities are being traded according to their arbitrage FX values today.
The long term $AUD, being a carry trade currency, is very bearish, the decline in the $AUD starting around February shows smart money unwinding the carry trade, which means they are also likely closing or have closed a large portion of their long positions. The $AUD has been declining while the SPX has been topping, the market has huge positions and they take time to re-orrient, this is why we see tops take some time and not "V" shaped reversals, but with the $AUD where it is now, the risk of the market just breaking at any moment is greater than ever since February. This is part of the reason, along with the other indicators here, that I say the market (as we expected) will be more volatile and less predictable as far as when it actually breaks and doesn't recover from that break.
The Euro is showing a lot better relative momentum than the SPX, the SPX is still tentative as of this capture, waiting to see if the Euro will break resistance, which just happened moments ago.
The long term correlation has broken down badly, the market is way overvalued and ready for a steep fall.
HY Credit in the near term has been somewhat supportive of the market, Credit almost always leads the market, today we see some downside in Credit, but it still remains in a supportive position.
Yields are like a magnet for equities, stocks will rally against the correlation or drop against it, but almost always return to the correlation. This is today's intraday chart, basically in line.
Longer term though you can see where the SPX has tried to bounce and Yields have not been supportive and each bounce has failed, now the market has reverted to the near term mean after having tried to rally in the last red box with no support from yields.
The even longer term picture is more clear, remember stocks should revert to the mean of yields, that's a long way down. In the red box you can see how much worse the downside momentum has become, making the market even more unpredictable as to when it breaks, the market is still living on borrowed time.
The Yen is doing what it should today, there's no information here.
However long term the Yen as a carry trade currency has been rising, meaning the carry trade used to finance stock purchases has been shut down. This is massive de-leveraging, smart money is taking risk off in anticipation of a market collapse.
High Yield Corp. Credit has recently been supportive of the market in the near term, usually credit will lead the market down. Longer term that is absolutely the case. The credit markets are much larger and better informed than the stock market, thus the saying "Credit leads, stocks follow"... eventually.
Here HY Corp. Credit has been trending down as the market has been sideways, again, massive de-leveraging of long risk and the credit market is pointing to the stock market's direction to come. HY Corp. Credit has seen a recent shakeout, but that's's about it, it is not turning bullish.
As for sectors, Energy has had about the same momentum a the SPX today.
Longer term Energy has been failing as the SPX has been topping, thus my short in XOM.
Short term Financials showed some early relative momentum, they lost it.
Financials have also been showing a lack of upside momentum in recent bounces, however near term there's a hint of some strength.
Technology was lagging yesterday, today it is more in line.
As you can see Tech has led the rally, since LOEB'S top 5 AAPL disappearance, Tech has been sliding .
This is today's sector rotation vs yesterday, as you would expect the defensive sectors are in rotation, however financials don't look that bad here as a risk on trade.
Market update coming
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