Market Update

Early today my gut was the USD/JPY would be the intraday driver of most of today's intraday action, I have some proof that this is what's going on. $102 is a very important level and it seems the BOJ tried to defend it overnight, but their intervention over the last year has been pretty weak at best.

Here's a little more on the pair and a couple of leading indicators, I'll check the closing indicators.

SPX (ES) is not hanging at VWAP, it's flat range created or brought VWAP to the area and is reflecting ES's somewhat "pinned" trade.

 USD/JPY (candlesticks) is not following ES (purple) intraday, it's the other way around, this is an overlay of the two intraday and you can see ES is moving nearly tick for tick with USD/JPY.

What is interesting is the reconnection as it has been a correlation since November of 2011 that has been nearly unshakeable, it was only the last week or so that they completely disconnected, but I don't think this is a change in character in the correlation, usually they are more subtle starting off, furthermore it fits exactly where the head fake move started and the short squeeze in equities, the currency cross has no reason to follow ES/the market higher, it's not being squeezed. 

However if the reconnection to the correlation is there, then...

 This chart of USD/JPY (60 min) vs ES in which the correlation is near perfect until the equity short squeeze took place, might just mean that reversion to the mean (without USD/JPY even moving) is worth about 60-70 ES points on the downside, it may be a little more.

This is USD/JPY intraday today, flat, but drifting a little lower, I'd just call it flat and right above the $102 level.

 If you look at ES/SPX futures for the same time period, the same trend, flat or lateral, only the overnight knee jerk gained the SPX anything.

HY Credit finally broke Friday, it was leading the market in to the head fake  area, now it's leading negative, even though it gained a bit today, I don't think that's any reflection of any significant change.

 The most interesting leading indicator in my opinion (other than some of our proprietary ones) would be yields which lost more ground today, the market is attracted to Yields like a magnet and Yields almost always lead the market in any trend change.

 Here's a wider view, it's not scaled perfectly, but yields in red vs the SPX in green show Yields going positive at the second bottom of the "W" (white arrow) before equities and there's a significant negative dislocation there now that was added to today. A larger view...

Shows Yields breaking down first in January before the market and the market follows like a magnetic pull, you see the small "W" and positive Yield signal and in scale, you have a VERY dislocated Yields signal, which makes perfect sense as I had said before the market upside move started, it's not based on buying, it's based on covering, it's a hollow move and breadth is reflecting that.

So we have a pretty deep reversion just to Yields as well.

However for today specifically, I think it's pretty clear all eyes are on the USD/JPY.

Since it hasn't added a higher high since the BOJ came out with their expanded lending facilities overnight, I suspect as usual, the half life of BOJ intervention is very short, but it does seem to be calling the shots, this is why I said this morning I'd put the pair on your radar and in the rounds.

I'm going to update internals and take a closer look, but the immediate reaction as soon as the bell rang at 4 p.m. was for NQ and TF to start losing ground even though USD/JPY is still flat.

Although it's WAY too early to make any assumptions, I do have to wonder if this is the start to one of those moves (the reason I wouldn't dare be long financials right now) in which longs are obviously locked in to their positions, nice and comfy on the close and we get one of those nasty a.m. gaps that takes out a week or two of longs on the open.

I'm just wondering because of the AH action right after the bell, ideally I'd think something like that would be after AH closes, but AH is so thin in liquidity, it could actually make a scenario like that worse, PANIC.