Market Update-Leading Indicators, Currencies are the Key

Earlier I thought the only decent way to get the SPY above the range which can set up a failed break out (a head fake move), which tend to reverse very fast and very hard, which could not only bring us to the lower end of the channel, but right through the bottom.

Today has been odd in that signals everywhere are mixed mostly on 1 min charts so I looked at leading indicators and while interesting ultimately it was currencies that seem to be the key and are looking like this will be a head fake move.

As far as leading indicators go, thus far there's a split in our sentiment indicators, FCT thus far is strong, HIO hasn't followed the market any higher than it was at 10 a.m. levels.

The price action in the VXX looks more like VIX futures are being sold than bid, at least intraday and up to this point, which is helpful for the SPY arbitrage.

In Credit land, HYG, JUNK and HY credit are all refusing to follow the SPX, they too are stuck around 10 a.m. levels and will not budge higher intraday which is not a vote of confidence in the intraday move.

Yields have dropped so they tend to act like a magnet, on an intraday basis that would mean stocks would be feeling the pull of yields to a lower level and commodities refuse to participate as well.

While the intraday TICK is useful intraday, the SPY 10 min is more useful in looking at the trend since the range and gauging probabilities.

 NYSE TICK intraday from the trend up to a break below the channel, not much has changed since the capture, but this is an early warning area to watch.

 The trend of the range in the SPY 10 min chart shows very clearly as we use a longer 10 min to remove some noise, but still have sensitivity that this most recent run to the top of the range has the largest leading negative divegrence of any of the previous moves, really there was only 1 other significant move that defined the range.

Here's where it gets interesting, last night I said that there are 3 carry crosses, the AUD/JPY, USD/JPY and EUR/JPY that can act as short term engines to move the market, in looking at currencies, it is plain to see that the EUR/JPY is the driver or engine behind a lot of today's upside. This in no way suggests the currency move is random or unconnected to what they may be trying to do in the market with the top of the range so close by.

This is the 1 min EUR/JPY, if I compared the SPX futures to this chart you'd see they are very close as this is the former carry pair that is driving risk today, typically though since the cary trades have been closed out, a pair rarely holds out for more than a day without failing or rotating to another pair.

This is the intraday Euro futures, with a large leading negative divergence, this is not good for the chart above and thus the pair acting as an engine for the market, thus not good for the market.

The JPY/Yen has trended down which is why the EUR/JPY could move up with the Euro moving up, but there's a relative positive divergence forming here so the loss of the EUR/JPY is likely the loss of the backbone of today's move, I suspect the use of the FX pair is closely connected to the move above the range (and likely a head fake move as it is the fastest way to send price to the bottom of the range).

Still I want to watch and be ready in case this is a move that can hold and run us up higher as we have been expecting (just with one final move to the bottom of the range first), this move to the upside is the much stronger trade, thus it would be great to see the market to pullback to set up new positions for the move and we have had those indications so it's not at all out of the question, but I have to be open to all possibilities if the data is there to support them.