Generally the risk asset indicators, most of which have leading qualities to them, look pretty much in line with the expected pullback. There are a few that are off doing their own thing, one a bit worrying as far as the sub-intermediate trend.
First, CONTEXT for ES...
As we saw earlier in the day, the CONTEXT model for ES remains quite a bit lower than ES itself, this divergence implies a pullback in ES as ES looks over-valued compared to the risk assets that should rally with ES.
Commodities were moving out of sync and were becoming a concern for a while, they have moved back in sync with the SPX (SPX is always green as the comparison symbol unless otherwise noted). Even though the $USD took a pretty good whack last week, it was higher today and a such it was a bit strange to see commodities in sync and in the green.
High Yield Credit stayed in sync with the SPX intraday so that's a pretty good signal as credit generally leads and equities follow.
Longer term HY credit was becoming a concern as it diverged negatively from the SPX, but over the last few weeks it has really shaped up and is in line with the SPX, when we see a divergence between the two, usually there's a trend reversal coming shortly.
High Yield Corp. Credit showed excellent relative momentum last Thursday and was in sync Friday, today it fell out with the SPX and seems to me to indicate the probability of a pullback, although it's hard to say just how much JPM's whale trade is effecting the various credit indices.
As you can see longer term, HYC credit is a little divergent with the SPX today, but not so much to cause concern, I take this more as a pullback signal. Note the positive divergence in credit in the white box and the SPX's response after that.
Yields are becoming a bit of a concern, typically yields are like a magnet for the stock market, this intraday divergence seems excessive.
We have seen some decent size divergences in the past that have shaped up, but the current negative divergence in yields is the one aspect of this layout that causes me some concern. Again note the positive divergence at the June lows and the SPX's response.
The $AUD is one of my favorite currencies as a leading indicator, Friday it was showing better momentum, today it was about in line, again, I take this as confirmation of a pullback in the SPX.
Longer term they are pretty well synced.
The Euro fell out of bed today with the SPX, it seems to me the legacy arbitrage correlation would suggest the SPX pulls back to sync up with the Euro.
However longer term there's also some concern, it would be nice to see the two meet in the middle with the SPX pulling back and the Euro gaining some ground. Furthermore the market showed some resilience today in the face of a lower Euro and higher $USD, which makes me wonder if we were seeing an attempt today to set up a bit of a head fake move before a pullback.
Sector rotation vs the SPX's momentum today saw financials gain a bit in the afternoon, Energy and Basic Materials did well too. Tech seemed to fall off a bit and some of the more defensive sectors fell off a little in to the close.
Since Friday, Financials seem to be rotating in (relative), there's more momentum in the defensive sectors like Healthcare, Staples and Utilities. Energy seemed to maintain, Basic Materials were off since Friday, Industrials showed a big change as they look to be rotating out and even though Tech didn't look as good at the end of day trade today, all in all it seems to be building some steam.
Other than the few concerns I have with the Euro and Yields, everything else looks fairly good for a move higher with regard to the sub-intermediate trend, short term there were some signs that appear to support the pullback signal we started seeing last Friday.
I'm really most interested in how credit reacts to a pullback, that will tell us a lot about the strength of the sub-intermediate trend and the probability of a short squeeze on a much larger scale.
No comments:
Post a Comment