HYG Follow Up

You may recall HYG (High Yield Corporate Credit) which is a popular smart money risk asset (they use when expecting a market move to the upside) caused some initial concern for me yesterday as it gapped lower.  After an hour or two accumulation in to lower prices was noticed and as the day went on that grew stronger my concern dissipated. I figured it was likely that because of the long holiday weekend and the VERY sudden change in character to very strong accumulation Friday (which bore itself out with the open this week in futures Sunday night and the market yesterday morning) that the gap down was likely to accumulate more, upon further reflection it also seemed obvious that as a SPY arbitrage component, one of the ways to knock down the strong gap up open of yesterday is to knock down one of the 3 main arbitrage assets for the SPY, sending HYG lower not only helped manipulate the market lower off the gap up yesterday, but allowed HYG to be accumulated at cheaper prices.

I took a look at HYG, here's a follow up to the charts there; remember the maxim, "Credit leads, stocks follow".

 The daily candlestick chart thus far is forming a bullish Harami or what we call in the west, "An Inside Day". I don't know if this holds through the close, but I'll be very interested to see what HYG looks like in our Leading Indicators near the close.

This was the gap down yesterday morning, the market gapped up so that normally wouldn't make much sense, but as you recall the market pulled back from it's gap up to re-establish itself with positive divergences right around Friday's accumulation range, almost as if Wall St. had an early head's up on Obama going to Congress during the day Friday, accumulating on that and using Tuesday's pullback to continue. HYG's move lower would have helped bring the market down as algos read HY credit moving lower as smart money taking a risk off position, however underlying trade showed us yesterday it was the exact opposite of the way algo trading would read price action, and rather it looked like much more bullish accumulation for a stronger upside move.

 This is the initial "in line" 3C reading (green arrow) as prices moved lower in HYG yesterday, they wouldn't accumulate at high prices thus the in line reading until prices moved lower. 

Again toward the close there was a late day sell-off, that seemed engineered to stop the market from moving above ES's VWAP as it bounced off intraday lows in to the close. Thus far the positive divergence in HYG continues as it still remains in the general range from yesterday.

The longer term 30 min chart which is very significant was leading positive at the lows back in late June (accumulation) sending HYG higher, then a leading negative divergence (distribution) at the July highs.

It looks like we have a fairly strong leading positive in place, I don't expect by any means and never have that any positive divergences now would be as strong as ones a month or so ago, the market is in too dangerous a spot to put a lot of money on the long side, when the music stops no one (smart money) wants to be caught without a chair.