Quick Look at Leading Indicators

The SPX is cleanly above Sept 18 (FOMC) level, the Dow doesn't look like it's going to make it.

What is so interesting about HYG is that Credit is a very large market and some of the smartest guys are in Credit and bonds, both huge markets.

HYG is obviously used to move the market, if you watched the GOOG video from Oct. 6th I re-posted today, you can see we were expecting a strong move to the upside, but not for the SPX's sake or the Dow's, but for the hundreds or more of short trades (by that I mean they already have sharp distribution on longer charts) that were just below a very useful area, I won't get in to the whole thing again, it's pretty much explained in the GOOG video or the DE post from yesterday.

One of the things some traders that I respect have been asking for a good part of the year is, "What does credit know that the market doesn't?"

When we look at HYG it's on a short term basis because it's being used like EUR/JPY carry trades to move/support the market.

So this chart of the EUR/JPY carry cross that started earlier this morning, is definitely eyebrow raising, although I don't want to jump to conclusions on an op-ex Friday, but you can clearly see the correlation and the change in character.

This is a 5 min chart of the EUR/JPY in green/red candlesticks and ES (SPX futures) in purple, that dislocation between the two started earlier this morning.

Here's the correlation between HYG and the SPX...

It is used for short term moves and you probably are thinking that doesn't look short term, but hold on.

The HYG chart just posted is only getting worse...

It looks pretty clear this isn't being distributed to hold the SPX pin in place on op-ex, this is money leaving HYG.

Here's the larger view and why traders have been asking, "What does Credit know?"

 This is a 4 hour chart, look at the dates below, Credit has been exiting the market. If you look at October you can see HYG supporting the market, but once it fails, HYG likely makes a lower low.

We've used Credit as a leading indicator for a while and it has called a bunch of smaller reversals on smaller dislocations, this is the largest I've ever seen.

The same with the sentiment indicators, we typically use them intraday to see what the next day or so brings, but look at the 4 hour chart and FCT that has been in line with the SPX intraday, is in much worse shape on a bigger picture.

This is the LI for Yields which called the Oct. 9th bottom, this was one of the indicators we used in expecting an upside reversal, but like HYG's 3C chart, this dive to the downside is also a leading indication.

As I said yesterday, I don't think the question is where the SPX is going, it's what has the market's move done for the shorts like DDD which I showed earlier today making that move, GOOG yesterday making it, NFLX making it today...