Leading Indicators Update

From now on, I'm going to call the Risk Asset Layout, "Leading Indicators" since that is what we really use them for.

As for the move we are currently trading or trading around a bit, I will address that in this post, but also in greater detail in the next market update after this post.

In this post I'm going to try to show you the near term as in the move we are trading now, the slightly bigger picture as in what we'd like to do once this move up is over and how we want to be positioned or at least what expectations are and finally the bigger picture which may even be a primary trend in which the two shorter moves I just mentioned, may be dove-tailing right in to that big picture (maybe even a new primary trend).

Commodities vs the SPX (***the green comparison symbol will always be the S&P-500/SPX unless otherwise noted)

 Yesterday commods fell off a bit, intraday today, the momentum performance has been close to in line.

 Longer term and for this most recent market bounce, commodities DID NOT signal any strength or positive/leading divergence as some other assets did, they did however signal the last few tops in the SPX. Even longer than this, Commodities are WAY out of sync with the market. If we see the norm (as of the last couple of years) then the concept of regression to the mean would be sending the SPX much, much lower, I'm just not sure those correlations are still holding water as pointed out. We can't take QE out of this analysis and I'm sure it will have some effect on commods and manufacturers, which may be what brings the SPX down to the level of Commods on a move to revert to the mean.

 Yields today are in line with the SPX, interesting because it shows a little more strength than I thought would be there, if this is just a normal consolidation/pullback as I suspect, than this bodes well for continued upside.

 Longer term, but within the scope of the recent reversal from down to up, Yields DID signal a positive divergence as you can see, yields were making higher lows while the SPX was still making lower lows, thus these are leading indicators.

 Big picture, Yields are very disconnected from the market and they use to have a pretty good correlation, so once again we have a massive negative divergence and if all other things were equal, the reversion to the mean in this case would likely put the SPX in to a primary downtrend or a bear market. If they can manage to kick the can down the road a bit further, the market will just be that much more dangerous when F_E_D accommodation is finally pulled with a huge asset bubble in stocks and I think that is why we are seeing unusual changes in the market such as rotation and high fliers getting dumped and beaten up stocks being picked up.

 The $AUD is an excellent leading currency because it tells us what hedge funds are doing, whether they are in the carry trade and buying or out and selling, yesterday we saw some definitive weakness in the $AUD, as mentioned, whatever accumulation needed to be done for this move, was done and the $AUD keeping pace isn't as important, but a very negative change in character would be. Today we are closer to inline, I didn't read all of the news, but I assume this is China related with some overnight positive news.


 $AUD showing a positive divergence to kick off the move higher the last few days.

 Big picture in the $AUD shows the early in the year top being called out by the $AUD as the cary trade was unwound, we now have a larger negative divergence in the $AUD with the SPX higher than the previous top, this again suggests a bigger move to the downside coming and this bounce we are seeing is the ticket to opening positions to take advantage of this larger picture.

 The Euro is more confirmation than leading, it has decent confirmation today so that isn't bad news for a continued move higher .

 Although not a great leading indicator, the Euro put in a bottom before the SPX and thus a bit of a signal of things to come.

 High Yield Credit saw buying before the move higher, right now it looks to be seeing some selling in to the move higher, we'll see how nimbly they are or are not playing this as well.

 High Yield Corp. Credit is much more liquid and a better proxy as credit leads the market, note the positive divergence in credit t the SPX lows, it's also in line right now, when this goes negative, then we will likely be looking at short positions in size.

 Longer term, HYG credit is still showing a pretty positive outlook compared to the early October highs, again this bodes well for a continued move higher as I have expected.

 Junk Credit is in the same boat as HYG above, both short term / intraday and longer term below.

 Again, Junk Credit signals a bottom before the SPX hits it.

Sector rotation... Interesting!

 This is just part of yesterday and today thus far, what is interesting is the rotation I mentioned earlier today like Financials in green at the bottom as FAS fetched more than TQQQ which is closely related to Tech  (2nd from the top) whose day was yesterday and today is out of rotation, this is a LOT of rotation for 2 days in the same move. Energy obviously rotated in today as well, thus the ERX positioning and profit taking, some defensive sectors are rotating in, which may be another sign of a pullback short term.

Longer term Rotation since QE3 was announced...

Here's the QE3 announcement, I warned back then as I always do with F_E_D policy events, "Beware the knee jerk reaction, it is almost ALWAYS wrong" and it was this time as we were up the 14th for 1 more day and saw quite a bit of downside from there with Tech, Industrials, Energy (especially oil) getting hit pretty hard. In a very strange turn of events, I bet no one would have thought the defensive Utilities, Healthcare and Staples groups would be the best performers after QE3 was announced, just more FOOD FOR THOUGHT.

Market Update up next, it should be good.