Trade IDea: HYG Short (or Puts)

HYG (High Yield Corp. Credit) is a popular institutional risk asset, it gained popularity after banks started selling their credit exposure after the 2008 credit/financial crisis, credit traders are some of the smartest, well-informed guys in the room, thus the saying, "Credit leads, equities follow" and yesterday HYG which is among the most liquid assets for trading credit (as banks no longer have enough to lend out to create a diversified position) broke down.

HYG is a popular market lever as the algos read HYG up as institutional risk on, but it's not as simple as that as it has become so manipulated now that it's one of 3 assets that are part of a larger lever called SPY arbitrage, credit up is a risk on or buy signal for the algos, the other two are defensive, VXX, short term VIX futures and if they are up the algos read it as a flight to safety and sell signal and the last is TLT (20+ year treasuries), a true flight to safety signal which algos read as such and sell. The SPY arbitrage is activated (and even though HYG was up this week, there was no SPY arbitrage because of the relative strength in VXX and TLT) when HYG is up and TLT and VXX are down beyond their correlations.

Yesterday I mentioned HYG breaking up which has market implications.

So far we have a quiet market today, quiet markets are dangerous, they're always up to something so don't be lulled in to complacency.

I'd consider HYG a short equity trading position or a (long) put position if it were to make a move toward yesterday's highs.

My custom SPY/NYSE TICK indicator is working well, you can probably get some early signals just using the NYSE intraday TICK like these...

 Note the indicator's trends, TICK can do roughly the same if you draw trendlines and look for a move away from the trend, but this gives good early warning as to what's coming and it looks like we are going to make an intraday move toward the top of today's range, that might be enough to make HYG move and set up a nice trading short.

HYG's 5 min chart is in horrible shape as I showed a few times the last several days, only the 1-2 min charts carried it up meaning it had very little support, just enough to make it move, but not serious accumulation of any kind, making HYG a hollow asset up this high.

I'm setting price alerts for HYG above yesterday's close and toward yesterday's highs, if I can get a move like that which should bring down put premiums, I'll likely open either a put position in HYG or a HYG short, although I prefer the put because of beta.

If you are interested, you might want to set some price alerts too. I'll of course let you know if I'm going to do anything BEFORE I do it.