Leading Indicators

In most ways Leading Indicators were dull today, there are simply too many bond, equity, (insert here other types) of traders that have taken a long holiday and the markets are thin, may appear to be run by algos for the most part, a lot like we saw Friday on Quad Witching.

As far as any signals worth noting went, here they are... (*All comparisons made vs the SPX in green unless otherwise noted)*

Credit...

 High Yield Corporate Credit above and HY Junk Credit below really didn't do much of anything, I think this is largely because there were few traders around.

 One interesting indication today was found in Yields which tend to lead the market like a gravitational force, so this divergence (positive) in yields seems to agree with the short term assessment of the SPY Calls, this is one of the few clear signals.

 The November 16th lows were the start of the current cycle to the upside which I have and still do expect to make a move to the downside, there have been several strange events like that Tuesday almost two weeks back when we saw short term accumulation come in to the market in the afternoon, we identified the IWM resistance level that was very clear and packed with stops so that was an obvious target and probably the reason for the short term accumulation, after that the QQQ had the same level form, that was hit last week.

Here the $AUD, which is not only my favorite leading indicator among currencies, but among all leading indicators, is showing a large negative divergence, this to me argues for that downside I showed in the last post of the QQQ 15 min chart, that doesn't mean in the near term we can't fill some gaps, but this $AUD negative divergence isn't something to dismiss lightly.

One other asset that may be arguing for the same is the flight to safety, Treasury signals that are giving positive divergences suggesting money is moving from risk assets like stocks and commodities in to the relative safety of treasuries, take a look at the charts for the longer dated T's / TLT...

 After distribution Friday on the gap up, today's dip saw a leading positive divergence.

 The next timeframe, 2 min shows a leading negative from Friday-it DID not add any new downside today and as I'll show below, this in my opinion argues for the downside of the November 16th rally / cycle while still allowing for a gap fill (thus the short term trade in SPY calls).

 3 min chart shows several positive divergence since the market make a head fake move last week, there seems to be an influx of money moving to safety and away from risk.

The same is seen on the 15 min chart here, it was moving in line with price (green arrow) and now is leading positive, suggesting a much larger move in underlying trade toward the safety of Treasuries.

This would argue for a very short term move up, followed by a larger move down and that may be the transition we need to connect the positive divergence that has been under construction since mid- September.

I'll try to put it together for you on the daily SPY chart below.

At the white arrow is the November 16th lows with a hammer/support that kicked off this latest rally / cycle, the move above resistance was most pronounced in the IWM and QQQ, but we can see it here too in the SPY, I believe that break above led bulls in to entering longs and shorts in to covering, but as it is in a yellow box, I suspect it was a head fake move (failed move-manipulation) as you can see Friday when prices fell back below the resistance/support level volume picked up as bulls would be at a loss and new shorts would be entering, what better way to confound all of them than sending the market in to the gap created on Friday (our short term SPY calls should benefit from that)-this would trip up some new shorts and really leave the bulls wondering what to do, depending on where the intraday move and close ended up.

Today's small Doji in the middle of Friday's body is also a Harami reversal candle-this would be an upside reversal (remember there's no way to tell how long, it could be a day or a week as far as the candlesticks are concerned, they don't give that information). Again, this works well with a SPY Call trade.

I envision from what I see above a move in to the gap and the leading indicators pulling the market down, finally completing the cycle started Nov. 16th.

Copper would seem to agree with the above assessment...

SPY vs. Copper (red), while the negative divergence in copper argues for the completion of the cycle with a downside move, very short term the gap in yellow wouldn't be unreasonable to hit, in fact it would even push a bit past that gap as the market almost ALWAYS acts like a pendulum, swinging much further one way and then over-correcting and swinging too far in the opposite direction.

The one lesson I have to learn over and over is never to assume the market is going to mov to a reasonable level in a reasonable amount of time, you need to nearly double your price estimate and time to do so.

The Euro today did gap up above the SPX on some strength from earlier, but during market hours that faded, note though how the SPX stayed in a flat position and didn't follow the arbitrage trade down.

So that's it for now, I think for what signals there were today, we may have got off a decent trade, we'll pick this back up Wednesday and in to the Final Window Dressing date of Thursday (because of the Trade + 3 "T+3" settlement rule), of course that just effects window dressing, not year end gains and tax selling, setting up new positions for the new year after the T+3 day, etc.

Everyone have a fantastic Holiday and I'll see you very soon.