The Aussie as a leading indicator

I touched on this in the last post, but it deserves a closer look. The $AUD is by far my favorite leading indicator among the currencies as it is a carry trade currency which is clearly off which is not good for the overall market and the currency is a barometer of Chinese/Japanese economic activity.

From the last post...

 Short term the SPX has fallen to the mean represented by a falling $AUD, this is ONLY short term and gives the market breathing room to make a short term move up, again when I say short term, I mean short term, it could be opening activity or perhaps on the Jackson Hole Speech "knee-jerk" reaction at 10 a.m. tomorrow morning. This leaves plenty of time for short term last minute re-arrangement of positions by both smart money and us.

Longer term the $AUD is clearly in the "Carry Trade" off mode, when carry trades are closed out, this is a sign that institutional money is de-leveraging risk, otherwise known as selling (which should always be considered as shorting as well as both a sale and a short sale come across the tape as sales-there's no way to look at the tape and know whether a sale was a straight sale or a short sale as in both cases the underlying stock is sold, there's no note with the sale that says, "This sale has to be covered at some point", that's only available in the short interest data which lags way too far behind to be of any use in figuring out what is on the tape.).

To give you a few examples of the power of $AUD signals, I give you these charts.

 The divergence here alone doesn't look that spectacular, but this is the 2009 bottom, to give you some idea of the size of the divergence, when the $AUD first started being accumulated for a carry trade or risk on move by institutional money, the SPX lost another 20% as the $AUD gained 4% which is a fairly large move for a currency, again, this was the 2009 bottom.

 Here the $AUD was in line with the SPX while the F_E_D had "accommodative policy" in place, when that policy/QE was ending with no mention of a new program, the market saw a de-leveraging phase, the $AUD warned first as the SPX made a new high. After the slight consolidation/decline, the $AUD bottomed and started making higher highs and lows while the SPX was still moving sideways/down, this led to the rally from 2010 to 2011.

When we started shorting the market with core positions in March, the $AUD signaled trouble as the SPX made a new higher high, from there the SPX lost 10%, most stocks on average lost about double that, at least most of the core shorts.

What these all have in common, like now, the $AUD signaled the reversal first.

Here's the last reversal (represented by the chart above) and the 3C 4 hour distribution, compare to the current distribution in the $AUD.

It doesn't look like the carry trade is coming back soon.