Leading Indicators

Just as I suspected, we ought to be looking for shorts in to strength where we can find them, I'll probably devote the rest of the day to that as well as trade management of open positions.

You have to see to understand and know where the opportunities are and how bad off we are.

First, CONTEXT is 30 mins delayed for non-subscribers, but it has added another -2.5 points to the ES/Model differential.

 Since the open, which is where the liquidity is, and you should absolutely be looking at CONTEXT, the fact the ES model is extremely lower than what ES is trading at, that this happened as volume and liquidity pick up at 9:30 and you should absolutely not forget the ES VWAP selling today, but yesterday's as well and this will help you understand how the market is reacting to bad news, it seems indifferent to it, but remember smart money doesn't sell or sell short in to falling prices, just the opposite as Goldman Sachs proved 2 posts ago.

 Commodities as a risk asset are not in a risk on move, they don't have a lot to distribute because they haven't made the move stocks have, they are trading closer to the FX correlation as the market did yesterday.

 Commodities vs the $USD intraday, not perfect, but very close to the proper correlation.

 Stocks on the other hand, completely out of the FX correlation as the $USD (orange) is higher on the day and the SPX (green) has moved higher on the day, the exact opposite of yesterday's nearly perfect FX/equity correlation-what changed since yesterday?

 The $USD (ornage) vs the SPX (green) over a longer time period, it seems with 10-days in to a new move in the $USD, this may be more than just a correction and may be a new trend. Either way, the SPX in green has an inverse relationship with the $USD, this can't hold forever, but there's a reason for it right now.

 My modified Clear Method Swing Trading Trend Identification, the $US Dollar is in a solid trend up, broken resistance after a 1 day pullback and has very few noise candles (yellow), in other words, so far, a very strong trend.

 A long term 60 min chart of the $AUD and how its divergences with the SPX (green) in the past have led us to market tops we have successfully trades with at least 20% or more gains in non-leveraged short positions, even at the 2012 Q1 divergence that started around mid-February, was clear by March allowing us time to build core shorts at the best prices and the market moving lower May 2nd to June 4th, still all 9 core short positions posted a double digit gain and not one had leverage.

Currently there's another and much deeper $AUD/SPX negative divergence

 Look at the typical correlation between the Euro (orange) and the SPX (green) at the green arrow, then look at today's slamming of the Euro and the market totally ignoring it, at least for a little bit, arbitrage platers won't let that last long.

 The longer trend in the Euro (ornage) vs the SPX (green) shows the normal correlation at the green arrow and an ever larger negative divergence lasting 9 days thus far, today added at least 100 pips of Euro/USD downside. AND I HAVEN'T EVEN LOOKED AT THE FX PAIRS AND WON'T UNTIL LATER!!!

THESE ARE ALL RED FLAGS

 The Yen moving down in a nice set up for a carry trade that finances hedge funds' stock purchases as long as the Yen is moving down, however as I suspected in saying FX is going to be the focal point this week, the Yen has turned lateral, failing in the downtrend.

Remember this is important because of the leverage currency traders and carry traders use, a 1% loss can easily be a 10%-200% loss and they can happen in hours-they of course are closely tied to the market.

 Yields are sliding intraday vs the SPX-Where's the support? What does that tell you?

 The TICK chart, other than the open at -1000, there have been no extremes at all that use to be common lace to have at least 2 dozen spikes +/- 1000 a day, now nothing above +750, nothing below -500.

 High Yield Corporate Credit leads the SPX even intraday!

 Longer term, this is the kind of divergence between credit and equities only a fool ignores.


 Remember the positive divergence in HY Credit and my opinion it was a  short squeeze, well the 10 min chart now has shown a negative divergence developing, that means HYG has seen distribution since the first minute it opened higher, supporting the squeeze idea and leaving the market with a huge red flag.

 HIO- a newer leading indicator, a high yielding bond fund with a negative divergence vs the SPX.

 The same thing locally intraday

Also new, PHB, another High Yield Bond Fund, just Corporate, it compliments HYG, see the similarities vs the SPX and see the problem for the SPX? These are all risk assets, why are they afraid to express risk sentiment when they are so cheap to own right now?