Risk Asset Update

So far I like the looks of how the Risk Asset layout is developing, both intraday and since the recent bottom in the market.

Pretty much everything we've been looking for from the bar pennant head fake move to the backing off of the test of resistance in the Euro and the market yesterday to the 3C signals and the risk asset update which confirms the market is acting much better than some of the correlations (I mentioned the market's stronger open compared to ES earlier today). All of the market's behavior that is meant to trap bears has thus far played out exactly as was predicted (with the exception of very specific things like exact times and price levels), it is the macro concept that matters, not so much the exact timing and length or depth of a head fake move. Put another way, the strategic view has been right on, the tactical execution is nearly impossible to predict, but we've been close enough to position. Now it's a matter of patience as we need the final piece of the strategic view to play out to start entering high probability/low risk trades as well as take profits on established spec. longs.

In general our biggest advantage over Wall Street is the fact that we can pick and chose our battles.  That means patience is one of your greatest advantages. I often feel like if I'm not making a trade I'm not doing anything to further my goals, but since we have been letting trades come to us, the results have been far better that ever before with far lower risk.

 Commodities are back in line with the market intraday

 Here you can see commodity momentum even outperforming the Euro.

 This is commodities vs. the SPX vs GLD.

 High Yield Credit is where I am very interested as credit tends to lead, equities follow or confirm. In a risk on move (market moving up), we have caught nearly every top by noticing a negative divergence in credit first. At the market lows this week Credit was already moving higher, a positive divergence and a a leading indicator it was giving us a good idea the market would rally off the lows while most traders expected the next leg down to begin. Yesterday HY credit which is one of the top choices for a risk on trade, held up even as the SPX dropped end of day, I told you why I thought that happened (the SPX EOD drop). Today we have credit making a new high in its trend and leading the SPX.

 Here's the bottom of the market-lows, HY credit was positive divergent, the green line is the SPX highs which have not been reached yet, the white box is HY Credit's new high.

 Yields gave the same signal at the bottom, they got beat up from yesterday's action so they are lagging a bit, but intraday in perfect alignment with the market.

 The $AUD also got beat up overnight, intraday it is nearly perfectly in sync with the SPX.

 The Euro is the same situation, intraday perfectly in line, this i an example of how the market is stronger than the correlations like currencies of ES.

 High Yield Corp. Credit is also a risk on asset, perfectly in sync today with the SPX

 HYC Credit is making a new high as the market sits just under it's recent high, thus credit is lading the market, this is a very good signal for our expectations, plans, strategy.

 Energy itself is seeing weaker relative momentum today...

 Energy intraday

 However oil/USO did what was expected in today's earlier USO update and at least filled the gap

 Financial momentum is excellent today

 Tech momentum was a bit weak, but came back to life.

Sector rotation shows financials in rotation as the chart above suggested, the Safe haven sectors are declining, Health Care, Staples and Utilities, Energy as you saw above is a little weak, mostly consolidative, Basic Materials are making a comeback, lots of momentum stocks in that group, Tech i hanging in there and Discretionary is performing pretty well considering yesterday's Consumer Credit report.


All in all, I'm happy with what I see.