Market Opinion & Leading Indicators

*If you'd rather skip some of the analysis and go straight to the theory/conclusion, just skip down to the bottom of the post*


I'm going to have to wing this as the market is moving fast and making a determination whether we are getting the positive divergences in to a pullback as we expected (see yesterday's posts) for a 1-day decline for op-ex or they are building, but it's more than a 1-day decline is VERY difficult to determine, especially on an op-ex day.


As far as HYG-High Yield Credit, it and Junk Credit have been very supportive intraday. Regular HY Credit today has been supportive of the continuation of the move up as I have expected.

Both FCT and HIO we use as sentiment indications, both are leaning more toward a risk on posture (market positive).

The $AUD has been largely in line, the Euro has been more supportive today, which may explain some of today's activity, the market can do strange things in front of a Central Bank policy announcement (ECB next week). The $USD today has been relatively weak, the market should act stronger, this tells me a lot of today's weakness was options expiration related as suspected. The Yen has been moving in line with price action which tells us nothing.

Intraday Yields have been weak (market negative) and overall (bigger picture) they are weak, but this can be related to the move down I expect after this move up that we have been seeing this week, finally completes. I do think the Yield weakness is related to the downside coming after our cycle up is complete (yesterday before any pullback today, I estimated the move up to be at least half way done).


Commodities intraday are fairly supportive of near term higher prices, larger picture as in comparing the previous SPX all time highs with this recent high, commodities are extremely negative hinting at the nastiness of the major downside move to come.

To make things even more confusing, the SPY arbitrage has been going negative so this last move intraday to the downside in the SPX makes sense, at the same time CONTEXT for ES is going severely negative, now at a -12 point negative differential, it has more than doubled today, however it can keep going negative in to rising prices, this is what creates the large 40+ point negative differentials and the sharp moves down which is something we are expecting to come soon any way so this may be part of that process.

Credit is not there yet so I believe that CONTEXT will continue moving to a more extreme negative differential even or especially in to short term higher prices.

The most useful 3C charts on an op-ex day are during the last hour which doesn't allow much time to analyze and position, but from what I see now, I don't think there's a need to be in a big rush.

Conclusion: Rather I should say theory, I think that the market may very well indeed be getting ready to make that final push higher, I also think it may base, which means continue in this general range/area on Monday to get ready to finish this upside move off, I think we'll be able to close positions if need be then and I think we'll have enough time to open new positions with high probabilities.

One thing I notice is the charts that support a nasty downside move are getting a lot stronger and a lot closer. When I said I thought the move up may be half way done in terms of time, it may be further along than that.

In other words we may be a lot closer to that nasty break lower than thought. I'd expect, especially if the market continues to build a base for the final push to the upside on Monday, that the move will be impressive on a percentage move basis, I also think that will offer us a great opportunity to enter or fill out short positions.

Bottom line, I don't think it's as urgent that we make big decisions on big commitments today, the signals for those moves will be very clear when they are ready.