Turning up the Volume

Other than the market breaking its winning streak, the Dow not posting an 11th consecutive green close, volume was one of the most noticeable things that was night and day...

However this was completely due to quad-witching that happens 4 times a year, the last time actually posted heavier volume and that was December 21st, right in the middle of the exceptionally low volume holiday season.

The other was High Yield Credit giving up the entire year's gains in 2 days...

Amazingly, this form of risk on (rally) credit, wanted nothing to do with holding positions any longer or over the weekend, I honestly don't recall the last time I saw an asset drop like this that wasn't earnings or scandal related. The financial mantra is, "Credit leads, stocks follow" so things may be getting very interesting very soon. European credit did and has been doing the same thing.

Some other basic leading indicators didn't look too hot today either...

 High Income Fund, HIO first broke before the SPX and other averages hit the trend channel stop, but since this last melt-up, it too has made new lows wiping away all of this year's gains, but added to that with an exclamation point today.

Oddly for another large move over the last 2-days, yields plummeted, we call yields,"A magnet for stocks". Apparently if there's any rotation between stocks and bonds it seems to be heading toward bonds/treasuries. Stocks obviously closed near their highs, however the 10-year bond closed at the lows of the week (strangely as a lot of other metrics like credit went south the last 2 days in a big way), the low yields are an indication of demand for safety, not usually something seen very long with stocks near their highs.

The last couple of weeks we've noticed unusual activity in TLT, the 20+ year Treasury ETF or the flight to safety trade, today was no exception 3C spiked toward the end of the day.

A huge leading positive move in TLT today.

The recently hot IWM lost the momentum game today...

The Momo Indicator with price went negative, RSI went negative, MACD went negative and Stochastics lost the embed and this is not the normal 5 min chart, but a longer 15 min, the 5 min lost it badly.

We saw several new large sell signals today in the DeMark inspired custom indicator...

 Dow Transports gave a sell signal on a MONTHLY chart, that's huge and rare, you can see how the last two signals worked out, the 2009 low buy that led to a +140% gain and the 2011 high that led to a 30+% downside correction.

The Russell 2K has a 7-day (usually 1-day signals make for sharp moves, longer signals make for larger moves).

Every measure of breadth I have been posting (Percentage of stocks above or below their 40/200 day moving averages) deteriorated today, every one of about 12. Interestingly I ran across a proxy index of the most shorted Russell 3000 names, which have outperformed by a large margin over the last month or so, however they fell the last two days as well, which should be showing up in the form of even worse breadth readings as the short squeeze in these names that propelled them higher is seemingly at an end.

I've been thinking a lot about the Q1 period of 2012 when it was incredibly clear to anyone who read beyond the headlines of economic reports that they were coming in with headline beats, but the data inside showed how weak they were, it was all due to seasonal adjustment which we covered last year almost daily and many times could find no benchmark for the seasonal adjustment, they were pretty much headline beats and then whatever adjustment had to be used to get them there, around March we started coming out of that period and CITI's Surprise Economic Index went from up to nearly straight down as the seasonal adjustments ended, it was an incredible insight in to just how manipulated Q1 data was, although as I said, if you read the reports and not just headlines, you already knew that, this caused us to build up large core short positions and by May 1, every short was in the green, by June every single short was at a double digit gain. So I had been messing around with some graphics software trying to overlay 2012 over 2013, I'm not as computer literate as you might think, I made a mess, but I found this chart today from Bloomberg that did it for me...

  Kind of interesting huh? Unfortunately the Citigroup Surprise economic index is no longer available  on Bloomberg without a paid professional subscription. However going down memory lane, here's one I published from last year around the same time...

This is what happens as the seasonal adjustment fades away. From a quick Google Search, I see lot of articles about the Index posting "Red Flags" recently.

However, by far (and this can't be taken alone, you have to consider breadth, volume, desperate measures with the VIX and the fact it does have a point in which it can't go any lower, leading indicators, money moving out of the market, safe haven trades seeing money move in, treasury Yields moving to lows, the Italian election, re-newed problems in Greece with the Troika, the recent 2-day data decline and perhaps the real dark horse, China and their inflationary stance against the world), this chart takes the cake for perhaps one of the most important developments perhaps of the year, 1 simple chart...

The absolute, outright price destruction of HY Credit, this chart is the worst/sharpest leading indicator I've seen since we put together the Leading Indicator layout to give more specifics than CONTEXT could give us.

I'll be covering currencies later this weekend and I'm thinking to cover Bellwether stocks, the momo plays and their 3C charts. Before I was using 3C, I had a good feel for the market simply by looking at a lot of charts, when there were more short or long candidates by far, you knew which way the market was heading, taking a look at underlying trade just gives us a head start.

Have a great weekend.