Risk Asset Update

It's good to take a step back, I can just feel the emotions and craziness, that's not analysis.

Our risk asset layout is a detailed version of CONTEXT where we can see exactly what is going on in credit, FX, commodities, sector analysis, etc. This is one of the most useful tools, but it takes a lot of analysis, I think it is worth it here.

If you don't want to read the entire post, the gist is there's still support for higher prices, the hedge fund hotel is starting to create a lot of noise in the market and making it more unpredictable, but the bottom line is the higher we can bounce, the more damage that will be done on the break of the bounce. These calls are getting harder and harder to make, but I think we can bounce higher.

There is some interesting information in the post though.

We'll take a look at the 3 pillars next, just slow things down a little. Unless otherwise specified, each risk asset is compared to the SPX in green.

 Commodities are in line for the most part with the market, this is important as you will see why.

 This is commodities vs the Euro, as the Euro is an inverse proxy for the $USD, they should travel together, this shows commodity strength despite Euro weakness or put another way, $USD strength. Yesterday I mentioned two things that apply to this 1) Wall Street kicked in some support yesterday to keep the market from falling on the bad economic PMI print and to keep the bounce alive and 2) "Once Wall Street sets up a cycle, they usually don't let anything get in the way". This up cycle was set up April 10th and as you can see, although commodities should be lower on Euro weakness/Dollar strength, they are not. This is the manipulation of the market that Wall Street can and does get away with, it's usually confined to tactical short term periods, they can't manipulate the major trend, only the F_E_D can do that, but this is pretty clear evidence in my mind that they have been able to use a few economic or 1 economic data point to fight the traditional $USD correlation today.

 As shown last night, last Friday High Yield Credit was not supportive of the market and it fell, yesterday as I posted, HY Credit was short term supportive and look at where we are today. The fact that HY credit is tracking the market pretty well looks like continued support, even though we have a little sell off in the small red box. Credit is usually pretty negatively divergent at a turning point and it stands out clearly.

 Rates long term suggest the market moves much lower, over the last weak or so they have been diverging which is what they should be doing in this cycle.

 (we are talking about two different or even 3 different trends here-the very near term, the bounce completion and the consequences on the longer term) In the very near term, Yields are supportive of the market intraday, they haven't faded off to a worse position so this looks like some continued support for higher prices.

 This is the Euro vs the SPX, traditional legacy arbitrage should see these moving together, we are seeing some short term manipulation of the market moving it higher against the head winds of a stronger dollar today. This is not often seen, but neither was what we saw yesterday that told us a move higher was coming today.

 Intraday, there's a little support (natural support) building in the Euro toward the EOD trade.

 This is a proxy for the $USD, the correlation in white is the only one on this chart that i correct, the when looking at the day on the whole, stock should be lower in to $USD strength, again, Wall Street is steering the market where they need it to be today.

 Yesterday late in the day one of the biggest tells that the market has support to move higher today was the end of day rally in High Yield Corporate Credit. Note it sold off hard on the market's early gains, since it has jumped back in line and near term is still supportive of the market, when the market has turned on the last 3 failed bounces, Credit was significantly divergence from the SPX, not so here yet. Long term, it is very divergent, but that is for the trend after the bounce is complete.

 Late day we are even seeing some more support from HY Corp. Credit

 Sectors are showing financials and Energy leading, Discretionary was stronger than it should have been yesterday also implying a higher move today, it remains pretty strong. The defensive sectors are losing ground.

 This is sector rotation this afternoon.

 Energy was the strongest yesterday and helped the market stay afloat, it is still lending support.

 Financials have lent support all day

Tech has been the disappointing sector, but we will look at these closer, this is probably largely due to the conflict between higher prices to sell in AAPL and the survival instinct among hedge fund managers to keep their jobs, a powerful mix.