Leading Indicators

First the SPY Arbitrage...

 SPY Arbitrage is getting worse all day, I don't think any levers are being pulled, I think there's just a natural correlation to the SPX's movement, but assets like Treasuries (Flight to Safety) and VIX Futures (VXX) , a bid for protection, have a bottom in place and won't even follow the natural correlation lower because of the demand for these assets, all safe haven and enough demand to break the natural correlation. I also showed you last night the short term downside 3C signal is being replaced in both with positive divergences showing they are getting ready to move higher, the correlation is the market moves lower.

 HYG which is the VERY LIQUID High Yield Corporate credit, being High Yield makes it a risk asset. Credit is an excellent leading indicator, so much so we say, "Credit Leads, Equities Follow", which has been true at every significant turn up or down that I have seen since using this layout.

 The slightly longer term, but still near term divergence or dislocation between HYG and the SPX is a good tactical signal for the larger core position trade, I said the SPX needs to move up or at least sideways while HYG moves down or at least sideways for this dislocation to build, it is furthering that goal today.

 Junk Credit which is High Yield just because of the risk is also negatively diverging from the SPX today like HYG.

 Finishing out the trio, High Yield Credit which is less liquid and therefore tend to move first and deeper has a deeper intraday negative divergence with the SPX, Credit is fleeing the ship like rats, that's not good for the market no matter what SPX price is doing. In these circumstances the higher I can enter a short or Put, the less risk and better positioning I have in a high probability trade.

 Commodities as shown earlier today gave up any willingness to take on risk and went the opposite direction of the SPX even though they are risk assets, there was some intraday floating with the market which probably didn't help as commodities are already so far dislocated, but didn't hurt either. More recently commodities are turning away from the SPX.

 Yields should normally move with the SPX, you can see today though they have refused to make a single higher high with the SPX and therefore are in a negative divergence with the SPX, just what we want.

 The AUD got hit so hard I don't think any move in the $AUD will help the market-the overall daily move is actually very negative, but the last hour or so the $AUD has moved directionally with the SPX, but again you can't see from this chart how much lower AUD is.

The Euro price alone is not supportive of the market at all, remember though currencies are the only near term concern I have and price is deceptive. The flat trend in the Euro can be one of the more dangerous for accumulation and an upside move in the Euro helps the market, even though on a daily basis the Euro is significantly dislocated with the SPX.

 The Yen has been moving up, this pressures the market, only recently has it given the market a small break as it consolidates, but the Yen moving higher again will put more pressure and effective pressure on equities.

The $USD on the day has moved up from the lows, a market negative, but given the market a break at the red arrow in declining a bit to allow the market some breathing room as the $USD's trend is typically opposite all risk assets.

VXX (VIX short term futures) will not make a lower low with the SPX's higher high, again this is the demand in VIX futures to bid up protection as traders are worried about the viability of this move.

In Currency futures, here's what I'm looking at and the reason for a partial (half) SPY Put position) as I always like to leave room in my risk management for a wide stop and the ability to add at better prices.

 EUR/USD had a neg. divergence pre-market sending it lower on the open (green arrow), the flat range looks like typical accumulation which would be market supportive, hover there is no positive divergence at the yellow line, 3C is actually making higher highs with price, the only reason I include it is because on the top it looks a little like a leading positive divergence.

 The carry pair of EUR/JPY, this doesn't look so good which is curious and why I'd like to see these resolved as there are some inconsistencies. This paid suggests the Euro moves lower as well as the pair which is market negative as 200:1 carry trade leverage makes even a small move down very painful.

 The AUD I think is so far dislocated that it can't do much to help the market, but in any case it is almost perfectly in line so there's nothing there.

The Euro itself seems to have a strong leading positive divergence, the problem is so does the $USD.

The $USD was positive before the open, at the green arrow (open) it moved higher, putting downside pressure on the market, now the range as well as the "Flag" look to the consolidation and leading positive divergence all make the $USD look like it will run higher, but that doesn't make sense looking at the EUR/USD and Euro divergences, this is why i'm a bit cautious. The Leading Indicators are falling apart negatively, but currencies could hold the market, this is why I'd like to see some resolution before moving to full sizes.

The Yen was positive pre-market, it ran on the open putting negative pressure on the market, it seems to be in a triangle consolidation and in line with 3C, but yet again, the EUR/JPY pair suggests that the Yen moves higher and Euro lower, another contradiction between the pairs and the single currency futures.