Market Update

I don't know everything I'd like to know about credit markets, I know they are far more sophisticated and better informed than even smart money equity markets and there are quite a few forms I don't have good access to so I may use my own indicators on them, but HYG is one of the largest after banks started dismantling their credit holdings in the wake of 2007/2008 making it very difficult for institutional investors to put on a diversified credit position as they banks didn't have the assets to lend until HYG came along.

What I do know about credit from first hand experience is that it tends to lead the markets, think about the credit freeze up (which is apparently taking place in China now) of 2008 and what happened to the markets, thus it's easy to see why they say, "Credit leads and stocks follow" and this is true like so many other things in the market that operate on a fractal basis (meaning the concepts work on a daily chart as well as they do on a 1 min chart).

Another thing I know about credit and HYG in particular as it is one of three assets (HYG, TLT and VXX) that make up the SPY Arbitrage scheme that is used to manipulate markets by making algos think the assets are reflecting a risk on or off position (usually on), is that it's not good when a positive divegrence is set up in HYG and it fails massively.

I don't know for sure if yesterday's positive divegrence in HYG was meant for a "Bang" or "Ramp the close" move or if it was meant for a little longer support, but this morning it has CLEARLY failed and when that happens, when a divegrence in an asset like that gets run over, it's not a good sign, think AAPL and the -45% decline.

 HYG and 3C with yesterday's afternoon divergence , but instead of up we see a swift move down this morning as the divergence appears to be completely run over. The red trend line is yesterday's HYG close.

Looking at the decline in HYG today vs the SPX (green), it's quite obvious that credit is leading the market on the downside.

However the bigger problem for the market is one we've been tracking for several weeks now, AS YOU MAY REMEMBER THE ACCUMULATION OF JAN 27TH THROUGH FEB 5/6 WAS EXPECTED TO PRODUCE A VERY STRONG MOVE TO THE UPSIDE, ON FEBRUARY 4TH IN AN ATTEMPT TO ANCHOR EXPECTATIONS BECAUSE I KNEW WITH THAT MUCH ACCUMULATION THE MOVE SERVED A PURPOSE AND THAT WAS TO CHANGE SENTIMENT FROM BEARISH TO BULLISH AND I EXPECTED IT ALSO TO BE THE SET UP FOR THE NEXT STRONGER TREND DOWN, IN AN EFFORT TO KEEP MEMBERS FROM PANICKING UPON SEEING THE MOVE I WROTE EXACTLY THIS ON THE HEAD FAKE MOVE TO THE DOWNSIDE THAT WAS BEING ACCUMULATED AND WELL BEFORE THE FIRST POINT TO THE UPSIDE (AGAIN TO ANCHOR EXPECTATIONS)...

Tuesday February 4th

" When I said we expected a head fake move in my Friday post (to the downside to set up the move up), "Come Monday", it was a head fake move to the downside, they need to be real, they need to be convincing, just as a bounce to the upside, I wouldn't expect a 1 or 2% move, I'd expect something that will fill my inbox with emails asking, "Are you sure the market is still bearish Brandt, this looks awfully bullish"."

The importance of this warning in trying to anchor expectations of what was coming was because the way I saw it and still see it now that we have objective evidence, the move to the upside is there to set up a larger move to the downside, thus my wanting to anchor expectations so you could use the move to your advantage.

 This is the bigger situation in HYG's divergence with the SPX.

 This is the short term pro sentiment this morning, t has been collapsing for days.

 This is the 15 min chart of VIX futures, last night when I said there were a few assets I was not comfortable or ready to take a position in as of yesterday's close, VXX (new positions) was one of them, that may VERY WELL change today as it is VERY clear protection is bid as I've had members with VXX calls say that they have held their value.

As for the averages both short term and a little longer, today may not be an official head fake move or it may have been, it is a failed move though and it's the same concept as to what happens to failed moves, they typically bring fast reversals and we saw that in premarket futures.

 SPY 1 min with a deep negative divegrence on the open of a failed, possible head fake move.

SPY 2 min migration

I keep noting Monday because we tracked accumulation all day Monday, ironically we had Putin's comments sending the market higher Tuesday so I don't think that was a coincidence, but the market hasn't done much of anything since Tuesday except range and see deeper leading negative divegrences on longer timeframes over such a short period of a week like this 15 min leading negative.

 QQQ 1 min also negative on the open and distribution of the gap up.,

 QQQ 3 min with Monday again and we have already taken out the accumulation zone from Monday

This is the larger move that I warned of above on Feb. 4th that had accumulation from Jan 27 to Feb 5th/6th, this is the one I said would fill my inbox with emails asking"Are you sure the this is a head fake set up for a bigger move down, it looks very bullish?" The 3C chart alone on a 30 min basis should answer that question through the rally.

 IWM also seeing distribution on the opening gap

IWM 2 min migration/trend since Monday's accumulation, nearly pure distribution in a flat range  which is where we often see underlying trade intensify as the market is lulled in to complacency.

And the Jan 27-Feb 5/6th accumulation and the move warned about as being very strong in an attempt to anchor expectations for the next trend this is meant to set up just like the head fake move lower through Jan 27th-Feb was a set up for the rally.