Market Update & Leading Indicators

As you know I haven't closed out the complete long call position, I closed portions of it because of the vehicle used-Calls, even though the QQQ is higher right now then when I closed the half position this morning, the percentage gain in those same calls is a bit lower as changing volatility volatility and time decay effect price.

With a less leveraged vehicle I'd probably have a much larger position open and that is what I mentioned yesterday, "If needing a long vehicle, I'd close the options and move to a less leveraged product that doesn't have the drawbacks of options, like a leveraged ETF".

Don't mistake the start of the process with a reversal or action point, we just want to know where we are in the process, especially because of the fact that I have a gut feeling the change will be swift as we saw last week with what were at the time very volatile moves down and then an incredibly volatile move up Monday-I don't think that has disappeared, I think that trait has grown stronger as I also believe the Fiscal Cliff resolution was priced in even before Monday's pop higher.

So here are a few charts showing some of the process underway and a few charts showing some deterioration in underlying trade conditions, this is not the same as what price is doing, it's the support or lack of it under price.

As for the averages... As it takes time to capture, upload and write this post, these now look worse than they do below.

I chose to show you these charts because I think it's important that you understand the process, how we arrive at our opinions, how the market is connected in a number of ways, each can give you a hint and so you can apply the principles to your own trading.

 DIA 2 min negative in to the move up, the 3 and 5 min are also moving down now.

 5 min, this is now clearly negative, not a much as the shorter timeframes, but that is natural.

 SPY 3 min was positive yesterday as it needed the help, but today we see some of that turning negative on this 3 min which is now worse, the 1 and 2 min are also negative, the 5 min is not yet.

 QQQ 3 min negative, which means the 1 and 2 min are as well, these are all now much worse than the chart above. Still the 5 min is holding up and that's where we need to see deterioration.

 QQQ 5 min looks a little worse than this tight now.

 This is to say nothing of the longer term leading negative divergence in which there's almost no support for this move, this should give you a mental picture of a tall ice spire that gets thinner and thinner the higher it moves up, that's like price.

FX

 The EUR/USD longer term is not supportive of the market at all and at some point the arbitrage players will step in and pressure the market, they may be doing that now, for instance if the FX pair was supportive, the market might be up another 1.5% right now.

Yesterday's drop and today's in the EUR/USD, again this is divergent (negative) with the market.


Leading Indicators

 As yesterday, once again commodities as a risk asset are lower and putting in a stronger negative divergence vs the SPX.

 I changed the green comparison symbol to the Euro, note how commodities follow the Euro almost perfectly.

 The Euro today vs the SPX.

 As you can see, the Euro is weaker today than yesterday so the divergence is that much more dangerous.

These are the kinds of things that can make this market snap in a very short period of time.

 A larger view shows the Euro down around the SPX as of last week.

 The $AUD is a bit off today, but not like the Euro.

 FCT as I mentioned, for whatever reason, works well as a leading indicator, especially longer term, but as we see here it was positive yesterday as shown which predicted the market moving higher in the afternoon, it is negative today.

 High Yield Credit is seeing some deterioration.

 High Yield Corp. Credit is also not holding up, this is not good for the market, the worse this gets, the worse it is for the market.

 Junk Credit is really seeing money move out of this risk asset that should move with the SPX if the move had some real legs under it.

All of this is telling us that we want to be patient, I wouldn't chase any new longs up here, I also wouldn't commit to a large (new) short position just yet, I'd be patient, understand there is deterioration and wait for the opportunity in which it becomes high probability with low risk.