Leading Indicators

I posted a summary of these yesterday, however didn't get the charts up, they are interesting because they are behaving as if they were in a stage 4 decline with a counter-trend bounce and we already know that the Russell 2000, NASDAQ 100 both entered stage 4 with the NDX retracing almost all of the February cycle (both also went through their volatility shakeout) and shortly after the remaining SP-500 and Dow broke to stage 4 with this particular move timing perfectly with the same volatility shakeout we saw with the IWM and QQQ which is a common occurrence as a stage 4 break is first made, it's the exact same as the concept of the volatility shakeout of a H&S top when it first breaks below its neckline which is the H&S stage 3 top moving to stage 4 decline, the next thing that happens is the volatility shakeout to shake lose new shorts and as many of you know, that's the third and final area of a H&S top that I'll short, the same concept applies here and to see leading indicators acting this way (in  stage 4) is not only interesting, but very telling of where we are in the February cycle and with the NDX having retraced nearly all of the Feb. cycle, it is also telling in that the primary trend should also be in a very early stage 4 area with the next major leg being a lower low well below the February lows.

This is the SPY/February cycle, it's not much different than a condensed H&S top with the preceding and proceeding trends.

Stage1=base, Stage 2= mark-up, Stage 3=top/distribution (like a H&S top), Stage 4= decline and "VT"= volatility shakeout.

The same staging in the NASDAQ 100/QQQ for the February cycle.

You can see the same stage, 1-4 and the volatility shakeout (just as it occurs in a H&S top) , except the NDX has retraced all of the February cycle and has returned to its stage 4 decline. "4c"= Stage 4 counter-trend bounce which is occurring at the same time the Dow and SPX are making their VT shakeout.

There's no particular order here, just the order in which I captured the charts. Remember, all Leading Indicators are compared to the SPX/SPY in green unless otherwise noted.

 HYG is interesting because we know it to be one of the first "go to" levers to lift the market because of the algo correlation or plainly algos reading HYG up as institutional risk on.

As you can see in this most recent move High Yield Corp. Credit is failing after very early confirmation. The small counter-trend bounce or VT for the SPX/Dow is losing it's support as it gets almost all of it through some lever these days, HYG is usually the first place to look.

Although much less liquid than HYG, the risk asset High Yield credit is not buying this counter trend/VTSO move either.

 This is our Leading Indicator for professional sentiment, as you can see on this 10 min chart covering most of the February cycle, it failed badly right after window dressing for Q1, April 1.

 This is a closer look, some of you may remember the distribution signals we were getting during the last days of Q1 when Window Dressing is at its peak (around the T+3 area before quarter's end). The signal here is as clear a leading indicator signal as we've ever seen.

 This is an intraday look at pro. sentiment.

 This is our second sentiment indicator through the entire February cycle and a bit before, it tracks very similar to 3C, especially in the early days which makes sense being we use it as a professional sentiment indicator.

Note the recent action on what would be a counter trend bounce for the QQQ/IWM and a VTSO for the SPX/Dow.

 Here's a closer look at the same indication.

Yields have been fairly tight with the SPX, here (as of the close yesterday) they are leading the SPX lower.

Commodities have also recently been acting as a leading indicator, like they did a few years ago, they called the base out before the SPX, they were in line at stage 2 and called stage 3 out early as well.

I'll have a market update out for you in a minute, with some earnings like NFLX last night it's not too surprising to see the early market action, however, it's also not too surprising to see the early market action considering where we are in this counter trend bounce, this is what I mean...

3C showing accumulation at the second head fake low below the support of what I was calling a "W" base, then distribution in to the top of the counter trend bounce.


 This second 15 min chart of the QQQ is exactly the same with 3C removed, it shows the second area of a "W"-like base with a head fake move below support of the "W" base just before it launches to the upside, the head fake move being seen at least 80% of the time before all reversals on any time frame and in any asset. today's move is the price shape reversal we describe as an "Igloo with a chimney", the chimney being the head fake move.

Also note how much tighter the bottom reversal area is compared to the broader rounding top, something else we see VERY often.

In other words, with such a nice rounding top in place, we'd expect to see a chimney/head fake move at least 80% of the time just before a downside reversal in this case.