Commodities vs the SPX, gold and oil were obvious out-performers today, but nearly across the board and as you'll see in Basic Materials in the sector rotation map, commodities as a whole did well despite their losing the FX correlation.
Most commodities are effected by the $USD in an inverse manner, since it's more difficult to see inverse divergences I use the Euro as a proxy as it makes up 50% of the US Dollar Index and is a pretty reliable proxy. Here the Euro is in green, commodities and the Euro should be moving roughly in sync, the last two days the commodities have been stronger than you'd expect considering the $USD. Strangely however, commodities have basically pulled up to a correlation with the Euro's close from last week. Unless something happens in Europe tomorrow to send the Euro higher (the European markets saw a bit of a short squeeze the least 30 mins of trade today), than commodities and the market both seem to be overextended and missing that FX support, but all kinds of correlations can be easily broken during a short squeeze which is nothing short of an emotional panic as we have been updating you over the last month on the record bearishness and in our opinion how these bears were going to be burnt before the market resumes a primary downtrend.
I hope you can now see the logic in my thinking when I decided to keep the core shorts which 5 of 6 are in the green with only 1 at a minor loss of less than 1% (in case of a black swan event) and added leveraged longs when the market was near its lows in anticipation of a short squeeze. As I was saying back then, "There are too many people on one side of the boat and in a zero sum game, Wall Street can't make money allowing that to go on".
Nothing has changed with regard to the sub-intermediate and long term outlook. If all goes according to plan, the shorts are hedged, the longs will make money (actually are all making money except 1) and when the time comes, the longs will be sold at a profit, we may add some shorts or fill out existing positions and prepare for the next primary leg down.
High Yield Credit is the risk asset in the credit markets, today it was a little out of sync with the market which is fine, especially if we are looking for that pullback to materialize.
High Yield Corporate Credit was off yesterday, it's back in line today.
Although Yields made an attempt today, they are still negatively divergence, if the market pulls back and there's some reversion to the mean between the two, we are fine, if the market keeps moving higher with yields continuing to diverge, we'll have a very unstable move up.
The $AUD was perfect today, no problems there.
The Euro made an attempt, but still remains divergent.
Sector momentum today saw Energy, Basic Materials and Industrials do very well, Tech came in toward the end of the day, Discretionary fell off and Financials were roughly stable. The flight to safety trades were out as you'd expect-Utilities, Healthcare and Staples.
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