The CONTEXT Model keeps building, ES is undervalued is the ES Model, so I wanted to take a look at the specifics and see what was causing this divergence in ES.
As the SPX (Green) takes out the a.m. lows from 10 a.m., commodities are running in the other direction, this is the 3rd day this commodity index is in the green, closing around +.50 Tuesday, +.70% yesterday and thus far today at nearly +.40%. I find it interesting that commodities (not a single commodity, but an entire index) is moving against the risk-off correlation as well as the FX correlation.
Commodities vs the SPX over the last several days, this is the first time I can remember commodities significantly outperforming equities as they have lagged badly for well over 6 months, commodities have a tight correlation to the $USD, which again makes me ask the same question I've been asking for a couple of days related to currencies, the Euro and $USD, "IS there something brewing that we don't yet know about?". You saw the Dollar chart last night, it was showing a strong distribution signal in to price strength.
The Euro correlation is not messed up, commodities are running against their normal correlation as seen here, they should move with the Euro/$USD.
Just to make sure there's no anomalies between the EUR/USD and the actual dollar, Here are commodities rallying WITH the dollar 100% against their normal correlation.
Yields are down intraday, I mentioned last night overall they are supportive of a market bounce, looking at a little larger view than just intraday, they still are.
Here's the 3+ day trend, Yields should (in a risk off move) be moving down with the SPX or even leading it, instead they are moving in the opposite direction in a bullish divergence. Thus far we can see at least a couple of reasons the CONTEXT model is so much more positive than ES.
Since the May 1 top where Yields diverged negatively which was one of the signals in our analysis that the market would reverse from the May 1 bounce highs, yields have been largely in line as they should be with a market risk off move, except the last 3+ days.
I don't just want to concentrate on the short term as our shorts that are set up for the changing market trend are performing very well (CAT and BIDU shorts are both up over 18% right now), the long term in Yields has been negative, this is why I was referring to the rally when it was under way as a "House of cards". The longer term view is very ugly, think regression to the mean here which would take us below the October lows.
Back to the near term in High Yield Credit, looking at the 15 min trend, it looks a lot like the 15 min 3C charts in many of the averages, tech stocks, and even ES as shown last night. However there's been some deterioration intraday today, yet the larger trend here is in line with many other indications that are totally unrelated to Credit. As you know from earlier, I expect if we do get the bounce and I'm still leaning toward it, it will likely be much stronger than anyone anticipates and these 15 min charts would suggest the same.
High Yield Corp. Credit intraday at this area is in a bullish divergence.
As far as the longer term, Credit is showing the market in major trouble. I first suspected the breakout in HYG above the downtrend was a short shakeout, that was before we knew about JPM as all kinds of credit are being effected by their position or what's left of it. In any case, longer term view of the market shows why our shorts are working so well and why Credit told us very early on to start building those short positions while the market was still near the top of its rally range. These charts may be a bit boring, but this is one of the reasons we started shorting in to strength when we did and the results thus far are excellent with near 20% gains and the market hasn't even entered stage 4 decline yet.
Currencies-The $AUD shows a slight bullish divergence, when $AUD is giving signals, they shouldn't be ignored, this is one of the best leading indicators among the currencies.
Sticking with that idea, take a look at the big picture and this is another reason we started shorting the top when we did, the $AUD is a carry currency and the shift between risk on rally and the carry unwind is quite clear.
The Euro intraday as of this capture is at a bullish divergence for the market.
As you know, I consider the 3 most important industry groups to be Tech, Financials and Energy; here Energy is bullishly diverging in momentum, again against the $USD correlation.
A little longer view shows this trend started yesterday and has gained momentum today.
Financials are showing a large bullish divergence from SPX momentum.
And Tech is bullishly diverging from the SPX today.
Ironically, remember that late day AAPL positive divergence, I didn't see a similar one in Tech, but Tech started to bullishly diverge late yesterday and has increased today.
I suppose I am wondering a bit whether we are going to get a much more volatile options expiration move rather than what we have seen recently where the market stays roughly in the same area op-ex week near the pin. In other words, perhaps more Put contracts are being suckered in to the market only to get a nasty surprise through op ex? Just something to consider.
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