Another Market Update

My apologies with so many market updates, but I'm just being super cautious right now because what I see screams "Weak Market" and just like retail flocks together in a herd, Hedge Fund and other managers do the same, in their field as long as you are in with the average return of the crowd (even if negative), the presumption can be passed along that it is the market and not the managers, but anyone who dares to try to do better and fails, they will stand out from the herd and lose a very well paying job, it's for this reason hedge funds continually underperform the SPX every year, most losing money every year and the exact reason they herd together as well.

The danger is like what happened with AAPL, one of the daring Wolves on Wall Street, Dan Loeb doesn't follow the herd, they follow his First Point Fund, when he sold, the herd didn't stick together, it became every manager for themselves and AAPL lost -45 % because of it.

This is why I'm being super careful here to make sure there's something solid to stand on before putting a foot out the window.

As for Leading Indicators (*For newer members. Leading Indicators are always compared to the SPX in green unless otherwise noted).

 This is HYG Credit, High Yield corporate and the most liquid, that's why it's one of the 3 assets used in SPY Arbitrage, when smart money go long, they usually do it in something like High Yield Credit.

This is intraday, you can see why the SPY Arbitrage is having so much trouble today, HYG failed to make a higher high just around the same time the Arbitrage fell apart as support, that was the first time around12:45, the second time was even worse at the right of the red arrow. This has me a little edgy about playing any longs because the term of the move must be short so to play it, leverage is likely needed, but I want to be as sure as I can be before deploying leverage.

There are a couple of possibilities I mentioned last night, I'll get to them.

 This is a slightly longer perspective of HYG and it looks worse.

However if we go out a bit longer (even though ultimately HYG is dislocated far below the SPX as part of the primary trend, the next move I can foresee beyond this intraday scribble, seems to share a lot of charts in common with a 10 min HYG that is positive vs the SPX, so it seems like intraday there will be some noise, struggle, chop, etc, but that target above suggests after this is straightened out,t he move that I was talking about Friday is pretty likely, If the hedge fund herd doesn't fragment.

 The more skittish  (because of low liquidity) High Yield Credit looks better today than the SPX, it's leading the SPX, so this looks excellent for a move higher, again that doesn't mean anything special, it may just be to fill that gap, but whatever it is, there's not much support anywhere for anything other than a quick move.

Even Yields which lead the market like a magnet, when they become dislocated, the SPX tends to be attracted to these 5 year Yields. In green they are moving in tandem earlier today and now they are leading the SPX a bit.

 From left to right, Yields are positively dislocated (white) and lead the SPX higher, then they become negatively dislocated and badly, this is where the market had a top signal confirmed Friday, so Yields are pulling the market up intraday, but I don't ecpect that to last long, when intraday collapses, the gravitational pull on the SPX from these longer charts will be a problem.

 This is Short Term VIX Futures, VXX, vs the SPX, however I inverted price for the SPX so we can more clearly see performance of VXX, it's clear to me that traders aren't that scared here as it doesn't look like VIX futures are bid as you can see in VXX's relative weakness.

Again, this is a short term (intraday signal, but it's a signal).

Remember the Currency Carry pair, AUD/JPY, well you saw JPY already, FXA is a proxy for the $AUD and you can see it was in line with the SPX to the left and now it is leading as a single currency, the pair moves as well, so this is very short term bullish for the market.

 SPY distribution in to the F_O_M_C and the positive divergence I noticed last Friday.

Note the bear flag, actually it's not a true near flag, it's a bearish flag, but there's 3C positive divergenceS there.

Technical traders take the bear flag the opposite of the bull flag, they expect it to break down to the down side, but last week I explained how they expect a bull flag to break to the upside and thus far that flag has failed as I would 95% expect as WALL ST. USES TECHNICAL ANALYSIS AGAINST YOU BECAUSE THEY KNOEW WHAT TECHNICAL TRADERS ARE LOOKING AT AND HOW THEY WILL RESPOND.

Being we already know how Wall St. will use a pattern like this and further evidence of the 3C positive divergence, I'd say it's fairly certain a breakout to the upside is going to be seen, causing shorts to cover and reverse to a long position, longs will buy on a breakout. We could even get a Crazy Ivan with a downside break down that retail shorts and then a head fake and move higher and break above the bearish flag, causing a short squeeze and a stronger upside move.

 The 2 min IWM chart shows the flag with a small upside channel buster, you know what happens with these, typically a downside reversal, so that leads me to...

There's a third possibility and it can mix any of these possibilities in with it, that would be....

We have a channel buster outside the top of the flag already, most traders treat this as a failed bear flag and technical analysis teaches them to go long, however we know these channel busters head in the opposite direction (down here) and I'm thinking there could be a break below the bottom of the flag that draws in shorts, causes longs to cover and then it breaks out for real to the upside on the move we suspected since at least Friday when we saw it *maybe Thursday it started forming?)

The last possibility is that price pulls all the way back to today's morning lows and creates a small "W" base, that would support an upside move better. There would probably be a head fake move below the "W" support, I drew the possibilities in. First we already have the channel buster, second a head fake at the break below the flag in a yellow circle (middle one), then we could see a move to support as defined by today's intraday low,  just before price takes off(assuming 3C is still confirming accumulation), then we should expect an 80% chance of a head fake below the "W" base's support (last yellow circle below yellow support line).

If that were to happen and 3C confirms still, I'd look at this as a much better move to buy, even as a short term trade.