Leading Indicators/Correlations

There seems to be a rough continuation of yesterday in many ways, there are some moves in currencies that I'd say are not connected, but have opposing influences on the market which makes for interesting volatility and may give us a clue about which situation or area of the world the market is more concerned with right now.

HIO, the High Income Fund continues to move lower, it has a record of acting as a leading indicator and just did so on a shorter term basis.

 This is the HYG ramp yesterday, if you saw the chart of HYG vs the SPX and HYG vs the VIX, you can see it was all very well coordinated right down to "banging the close" which can have some repercussions today with Quad-witching, depending on how trades/hedges were structured, that move at the end of the day yesterday seemed to be mostly about moving the market, but with Quad-Witching today, it could have more to do with expiration of 4 different derivatives, see the legal definition of the illegal act of "Banging the Close" in last night's post, which came directly from the CFTC's website.

 This is the long term chart of HYG vs the SPX for the entire year, it is negatively dislocated with the market after having led the market, so as I was saying last night, credit leads equities in a number of timeframes.

 Speaking of which, this was yesterday's complete collapse of High Yield Credit, High Yield Corp. Credit went the opposite direction, but it is VERY liquid and easy to get in and out of, it would have been my natural choice as well for very short term manipulation without getting caught with your pants down.

 Today High Yield Credit drops even more.

 It also doesn't have a very cooperative relationship with the market, heading down in to market bounce attempts.

 This was the chart for Yields yesterday, as you can see with falling yields, the notion of rotation from bonds to stocks is simply not supported, this is also a leading negative indication.

 If bonds were rotating in to equties, we'd see Yields moving up with the SPX, instead they have stayed flat and are falling now (in staying flat they were falling vs the SPX).

Looking at Yields for the entire year, if there was the "Great Rotation" as the Financial media have been talking about, Yields would be rising with the SPX, instead they haven't made a higher high the entire year thus far, which puts them at a negative leading indication vs stocks.

In currencies there's some push and pull, the Yen is moving higher intraday which pressures the carry trade as well as the market. At leverage anywhere from 10:1 to 200:1, every pip can be hugely dangerous. The more interesting aspect is what is going on with Japan, the BOJ and the China dynamic which the Yen seems to reflect here and there recently as it hasn't before.

Here's one of the flat areas in Yen trade, which can be several things, but my first guess would be the unwind of the carry, market breadth seems to support that view.

The EUR/USD has answered the question, Germany won, Draghi likely backstopped the EUR/USD at $1.30 as they have been doing and pushed it back over in overnight trade, this is supportive of the market, so in addition to all of the Quad Witching volatility, we have opposing market correlated currencies moving in different directions (Yen pressuring it/Euro and USD supporting it).

The EUR/JPY is falling here even with the Euro up, which means there's upward pressure on the Yen.

The same, but even worse with the USD/JPY, the USD is falling and Yen rising, again opposing forces on the market.

Here's the $USD intraday vs the SPX, yesterday when the $USD was falling the SPX was in some trouble as it couldn't make the higher highs it should have, that's the same time I posted there were negative divergences and trouble in the market and shortly after that is when the correlated movement of the VIX and HY Corp Credit kicked in to rescue the market, with today's move even lower in the $USD, this "should" be supportive of the market, but we have so many different undertones today from the currency situation mentioned above to the plain craziness of quad-expiration.

In Yellow the $USD is rising, which would normally pressure the market, yet the SPX moved higher, thank HYG and the VIX futures.

Finally this is the single currency Yen Futures, note the positive divergences and the Yen heading higher. I'm wondering if there was more rhetoric out of China.

The bottom line... There are a lot of forces at work, all of which have algos that track their movements and buy and sell stocks thousands of times a second based on the movements. For instance, a VIX correlated algo doesn't know that the VIX is dropping because of manipulation of the Futures market, for all it knows the F_E_D just announced QE 4 through 20 and Put protection hedges were taken off en masse, giving the algos the green light to buy. Now consider there are credit driven algos, currency, headline, all sorts of arbitrage, etc. There are a lot of moving parts, especially today thus far.