I was going to post this earlier, but there was so much to cover, since I had time, I decided not only to cover the short term as we are expecting a move to the upside, but what comes next or the bigger picture (big move to the downside).
I'm not sure there's a great way to organize and present so many different types of charts so I'll do the best I can with it.
Also I have some other topics to cover, I'll do those in separate posts for anyone who may wish to see something specific without digging through 1 very large post.
I'll start with our normal Leading indicators.
Leading indicators are always compared to the SPX which is always green unless otherwise noted below the chart.
Commodities *Remember, these are compared to the SPX in green*
Intraday today commodities underperformed the SPX, one of the things I mentioned about a week or so ago was the correlations between risk assets and the $USD which had not been very good until a few weeks ago ($USD up=risk assets like commodities down / $USD down=risk assets up / basically there's a mirror opposite relationship generally with stocks as well)
*This is commodities vs the $USD 1 min intraday, it seems the reason for commodities underperformance vs the SPX was $USD related as the $USD gained ground through the day, commodities fell about the same.
*It is interesting to note however that the SPX (equities are risk assets) was not held down by the $USD correlation.
Back to commodities vs the SPX.
This is the bigger picture view, during QE1 and QE2 commodities stayed pretty well in sync with the SPX, however several months before QE2 ended, market participants front ran the known end of QE2 and started selling off commodities which were causing inflationary pressures seen in earnings by way of decreased profit margins due to higher input costs. The divergences in Q1 2012 and Sept-Oct 2012 were good leading indicators and noticed at the time.
The degree to which commodities have diverged from the SPX is a HUGE red flag for the market, it is particularly bad during the Q1 2013 rally where we see a number of red flags including horrible market breadth readings.
High Yield Credit- The saying is, "Credit leads, stocks follow".
Long term vs the SPX on a daily chart since the start of the rally in Q1 2009 Credit led stocks at the 2009 bottom, then negatively diverged at several 2010 pullbacks as well as several 2011 short term tops.
The degree of the expanding negative divergence in credit vs the SPX is a huge red flag and cause for concern for the stock market.
Risk Sentiment Indications
FCT 1 min over several days vs the SPX shows risk off in to Tuesday's bounce and Risk on sentiment today. FCT is not correlated to the market in any manipulative way so it's a pretty pure indication of sentiment.
The bigger picture on a 30 min chart, FCT v. SPX shows confirmation for the 2013 rally until some weakness in Feb. right before the Trend Channel broke, the leading negative divergence now is significant, even if the short term is more positive; this is just typical increasing market volatility for the stage we are at.
HIO is another Risk sentiment indicator, intraday on a 3 min chart it is in line the last several weeks with the SPX and recently is leading positive above the SPX for the near term.
The long term HIO risk sentiment is very negatively dislocated from the SPX.
*Note all of it is through the 2013 Q1 rally, however the near term is improved for the near term move we expect, that doesn't change the bigger picture though.
Yields... "Yields are like a magnet for equities"
Yields 1 min intraday today show increasing bullishness in underlying risk indications, they are leading the SPX in to the EOD, although that market is closed at 3 p.m.
Yields medium term (
ND=Negative divergence and the red box shows the SPX's reaction to the divergence.) Remember yields are like a magnet for equities...Right now in the medium term Yields and the SPX have reached
"Reversion to the mean" however today's early action seems to be showing yields leading the market to the upside short term.
Yields long term show negative and positive divergences with the SPX and the SPX reacts as it should in each case. Around Feb. 2013 Yields dislocated with the SPX and failed to make higher highs, shortly after they broke down when the Trend Channel stopped out for the SPX. Longer Term there's a leading negative divergence. This suggests that beyond the very near term, the SPX should see a strong move down, likely followed by a bear market.
Currency ETFs (I'll update FX futures in another post of just futures)
The $AUD has recently taken the job of the Euro and has been tracking the SPX very well with nearly 1.0 correlation. Today's failure in the $AUD to make higher highs seems to indicate more strength in the SPX than what appears, although it could also be interpreted as there's a decent chance this is a short term negative divergence as in a possible early break lower in the market as already discussed in the previous post; it's very difficult to tell because both the $AUD and Euro moving higher are supportive of the market and their futures both have short term positive divergences, it's just unclear whether they are strong enough to start immediately as currencies have told us a day in advance which way the market was going the last 2-days, the short term signal is not that clear tonight, but they both are going to move higher near term, just whether by tomorrow morning or perhaps tomorrow afternoon is not clear.
FXE/Euro also has the same correlation with the market as the $AUD above and it reacted the same way today.
Longer term 15 min the Euro/FXE was negative at the April 2nd SPX highs and the SPX followed that divergence lower over the next few days, right now the overall short term signal is leading positive, again the question is when does the move start? By the morning or do we see a downside market head fake move first as discussed?
The 3C charts for both show short term positive divergences so they appear that the market will see strength by early morning. I checked the short term 3C market averages and the SPY and QQQ seem like early strength while the IWM and DIA both come down on the side of strength, but early a.m. strength they are more ambiguous.
$USD v SPX medium term has seen a $USD pullback, the weakness mid-term in the $USD has made it easier for the market to rally, although it does look like the pullback is near an end. I suspect we see one more move to the downside in the $USD short term (with a market rally) before the $USD heads back up (pressuring the market negatively).
$USD longer term has formed a "W" bottom, the breakout from the base was exactly the same time as the SPX Trend Channel Stop out. Note the $USD has pulled back mod term as seen above since late March, you can see the SPX strength as a result peaking above.
The FXY (Japanese Yen) is market supportive when it is moving down.
***Today's intraday move to the downside in the Yen coincided nearly perfectly with the SPX intraday bottom from which it moved up the rest of the day.
Longer term (a subject I covered in depth Saturday and Sunday this week in my
"Currency Crisis" posts) shows how the market moved up as the Yen trended down (green arrow) and as the Yen consolidated, the SPX Trend Channel broke, further consolidations have caused market volatility.
My view is the longer term Yen probabilities are for a move to the upside, pressuring the market longer term, perhaps an intermediate trend or a full blown primary trend (bear market).
High Yield Credit (This is a risk asset, it tends to lead the market).
HYG intraday was in line with the SPX early today and showed better relative performance around noon through the close.
15 min HYG shows a negative divergence in early April sending the SPX lower, in line recently and leading positive the last couple of days, this is supportive of a near term market move higher.
The 5 min chart of HYG shows the in line status with the SPX to the left and the recent leading positive divergence, supportive of a market move to the upside and pretty strong.
High Yield Junk Credit
JNK acts almost exactly like HYG, it did so intraday today as it showed better relative performance than the SPX from noon on.
It also shows the negative dislocation from the SPX early April sending the SPX lower, in line status last week and a strong leading positive divergence the last couple of days.
Here's a closer look at the recent leading positive posture of Junk Credit.
TLT-20+ year Treasuries or
the "Flight to safety trade"
Intraday TLT seems to act as it should vs the SPX.
However on a slightly longer basis it is clear the SPX has not moved to the April 5th low, however TLT made a slightly higher high, this looks like short term manipulation, perhaps to drive the SPX below the low of 4/16 which completes the head fake move I mentioned as part of a
"new normal" "W" base this morning in the
FX Moves Post from 10:38 a.m. *the discussion is at the bottom of the post*
TLT w/ 3C
The 5 min 3C chart of TLT shows distribution in TLT's highs today, it's likely they were either used to manipulate the market or to set up sales in to higher TLT prices for a short term correction.
Back to the discussion of whether we see early strength tomorrow or a head fake move of early weakness, this 1 min EOD positive divergence in TLT suggests we see early weakness tomorrow a.m.
The long term TLT chart shows distribution around early summer 2012 and prices followed.
*Note the head fake move in yellow right before the reversal, the new high would have brought in new longs and set a bull trap helping reversal momentum.
At the start of the New Year and during the SPX rally, there's a strong flight to safety (***this was the time CNBC was saying there was going to be a rotation out of bonds-that never happened). Instead we have a long term, very strong 3C leading positive divergence showing there has been a massive flight to safety, it may be hard to imagine with the averages making new highs, but the individual stocks as seen in breadth charts have seen a majority failing to participate in the rally, ****This is accomplished through the magic of Index ***
Note the downside head fake move before the upside TLT reversal in yellow to the right, essentially a small bear trap.
VXX-VIX short term volatility futures
Intraday the VIX looks a lot stronger than it should especially at the end of day.
Longer term the VXX is making a slight new high even though the market did not make a similar new low, while you could argue the recent volatility is driving a push for protection, the 3C charts show another story.
Intraday today VXX did not weaken as you'd normally expect as the SPX advanced in to the afternoon. In fact the early VIX high seems to have been used to pressure the SPY arbitrage trade to push the SPX lower early in the day, as the low in the SPX didn't come until just after noon, this would suggest early manipulation was to push the SPX below the former low of 2-days ago (the head fake move) and the noon time lack of a new high used to help push the SPX higher, if so, the SPY Arbitrage chart should confirm with Red in the morning and green around noon time.
And look at that, VXX is one of 3 assets in the SPY Arbitrage model and it confirms exactly what I said above.
The other use of a higher VXX (remember we had a long signal on volatility on April 10th and 15th, the price strength in VXX today was used to sell in to as you see 3C making a leading negative low indicating profit taking.
*** Even on a 5 min chart we see institutional profit taking, this isn't distribution, it's more short term profit taking in advance of VXX pullback expectations on a market move higher.
This is why I know it's short term profit taking, the 30 min VXX chart (much heavier accumulation/distribution flows) shows a leading positive divergence in VXX, volatility over the longer term is being accumulated, a flight toward protection.
UVXY confirms, also confirms the April 10th and 15th long signals. Note the 2 head fake moves-as the market is fractal, these occur in every timeframe.
We are looking for at least the "W" bottom so the move is not surprising. A "W" bottom is the minimum we need for stability to place some short term long trades, there's always the chance that a "W" turns in to a series of then which would be a trading range, but judging from the mid term and longer term 3C charts, I don't think this market can hold up that long.
$USD has been moving up all night, this actually starts just after the close yesterday when the currency post telling us to expect this move was posted. Remember strength in the $USD puts downward pressure on the market and risk assets like commodities and precious metals. This very recent spike is what's causing the weakness in the market this morning.
Here's the 5 min chart, the red is when the Futures post written late Monday night/early Tuesday a.m. was posted telling us to expect Dollar downside (which is market supportive which we saw yesterday) and at the white area is yesterday's after market post telling us to expect dollar strength (market negative).
1 min Euro futures shot down this morning around the open, that puts negative pressure on risk assets/the market.
5 min Euro futures showing the same areas with the same posts mentioned above and you can see how the Euro has lost quite a bit of ground this morning, pressuring the market.
