Wednesday, February 20, 2013

High Yield Corp. Credit

I'll try to make this short, but just like yesterday's VIX punch through the bottom in the last 1/10th of a second to hit stops seems to have been purposeful, I think HYG may be finishing a short squeeze or some other theme that has the same effect.

The saying is, "Credit leads and equities follow", we've seen it play out many times both here and Europe. This 60 min chart below shows the SPX moving up and Credit diverging, this has in the past, always been a red flag for the market's trend, the yellow arrow is Feb 1.

 The thing is, HY credit diverged so much, it was so incredibly cheap and attractive as a risk on asset, but more than that, I think HY Credit started moving up on a short squeeze.

 Looking at HYG (High Yield Corp. Credit), the 30 min chart shows the negative divergence and break to the downside, in green is 3C/price trend confirmation, red is the distribution/negative divergence and white is a positive divergence that I have said in the past I believe to be part of a short squeeze.

 A faster 15 min chart shows the same, but if this is what I think, then the recent activity is no longer confirming at the far right and is going negative.

On a 1 min intraday chart it looks as if HYG is about to turn down, I wonder if this is a final shakeout of shorts like the VIX seems to have been shaken out late yesterday?

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