HYG Update

Since HYG (High Yield Corporate Credit) is one of 3 assets (VXX, TLT and HYG) that are used in algo arbitrage trading, which means it is a lever to move the market (instead of buying a bunch heavily weighted stocks to move an index, they move HYG and fool the algos in to thinking institutional money is in a "Risk on" or buying mode and the algos do the rest, conversely moving VXX or TLT up fools the algos in to thinking institutional money is in a "Flight to Safety" mode, usually all 3 are used together and that's called the SPY arbitrage) I have been watching it not only on the "Leading Indicators screen, but on its own as well.

There are some interesting short term and long term trends that are emerging in underlying trade that essentially are a way to look at the market using HYG as a leading indicator.

I'm specifically looking at the very near term as in the rest of the week (VXX call trade from yesterday for weekly expiration Friday) and the bigger picture at the large February cycle in which all 4 major averages have broke to stage 4 of the cycle and 2 (the SPX and Dow) are doing the volatility shakeout whereas the NDX and R2K have already both broke to stage 4 and completed the VT shakeout with the NDX retracing all of the rally that started in early February (February cycle) and I'm looking at the daily chart.

 As far as the VERY recent call from Friday for a small market pullback and bounce (yesterday's weekly VXX call position was based on the pullback part), HYG is clearly going negative, but there's actually a much larger trend than what is visible on this chart, I just thought this morning's lower low in a leading negative divegrence was interesting considering.

 There's also healthy migration as seen above on a 3 min chart (2 min as well)...

And out to the 5 min chart, which is the first timeframe in which I take intraday moves very serious, as a lot more than "steering" or intraday divergences for intraday trade.

Worse yet, the trend of the same chart from the February cycle. We saw HYG being accumulated in January (late) with the market (Jan 27th it started for the market) and knew we'd get a very strong move up, but it was a means to an end, not the rally it appeared to be.

The trend in HYG since has been very revealing about the truth of the stage 3 (top) environment of the Feb. cycle and on the volatility shakeout for the Dow and SPX (which started at the 4/15 mini cycle we are in now) things have gone from bad to worse for HYG's underlying trade with intraday charts in line with the same leading negative seen here which is much more serious on a larger time scale, essentially this is pointing to the market moving back to resuming the stage 4 decline and likely a larger stage 4 decline beyond just the Feb. cycle's.

For instance, note HYG's daily chart and the pretty decent confirmation. There was a negative patch right around the December Window Dressing for the year and Q4 and we saw that in the market at the time, but it has really accelerated since on a leading negative divegrence.

The usefulness of HYG's 3C charts is not to think about these as a picture of what HYG is likely to do, but what the market is likely to do as Credit is one of the biggest, smartest markets and HYG is one of (if not) the biggest levers to move the market when it otherwise can't move itself, in other words, manipulation.