Market Update

I'd normally be posting quite a bit more, but this Quad-witching is unusually tame in volume, volatility and really almost anything of interest including underlying 3C signals, it's difficult to find anything that stands out.

I did however find some unusual charts in some out of the ordinary places, like Leading Indicators and there are some unusual things going on during this very flat trading day when volatility and volume are usually very high.

Carry Trades are virtually flat, but it does seem like there may be some covering in the carry trades, interestingly the AUD/JPY which has been the only carry trade that has had "some" market correlation this week ( a day or so I believe), looks as if it's being covered or rather closed, the same looks to be true of the EUR/JPY and the JPY in general (which would be buying in the Yen).

 Yen intraday positive divergences, to close a carry trade, the Yen has to be bought back so accumulation or higher prices in the Yen (as it is the second symbol in a FX pair / carry trade ie: USD/JPY is the short with the first being the long).

 The larger 5 min Yen chart shows the same trend developing, looking like the flat carry trades (today) and very flat for AUD/JPY the last 2 days after the F_O_M_C which is one of the only places it seemed to be in charge (as well as leading positive just before-possible leak) smells like there was a quick carry risk on that is now risk off and this in to the F_O_M_C.

 To cover the AUD/JPY, not only would the $AUD have to be sold, the Yen would have to be bought to close the trade, the USD/JPY is the tough one as there's outside intervention from the Bank of Japan as they try to maintain the $102 level and have clearly been active in lifting bids as price has dropped below that level (which "could" be an indication that carry trade is being closed, thus the need for the BOJ to lift it back to $102).

Here a 15 min chart of $AUD has a positive divegrence right in to the F_O_M_C this week and after a leading negative divergence right now.

These are also apparent on some longer charts as well.

Here's the Euro (EUR/JPY carry) which has a positive look to it pre-F_O_M_C, although not a clear signal, what is clear is the leading negative after the F_O_M_C, especially in to yesterday's non-follow through market day when EUR distribution looks to have started carrying over to today.

That's just some of the smaller pieces of the puzzle.

As for others...

Yesterday's very strong SPY Arbitrage (yet very unhelpful) has turned negative, there are clear reasons why, such as...

 Here I have the CBOE's VIX vs the SPX (green), I have inverted the SPX's prices so the lower they look on the chart, the higher they actually are, this is to show the relative performance as VIX would normally travel in sync with inverted SPX prices (as the two have a normal inverse correlation), it's clear to see the VIX is outperforming the SPX/correlation today. If you drew trendlines from VXX point A to point B you'd have a VIX uptrend, if you drew the same for the SPX, you'd have a downtrend which actually means the SPX is a little higher here, however, the VIX should be at new lower lows on this chart, not outperforming.

 This is the same SPX price inverted chart with the VIX showing the normal correlation to the left and as the SPX's prices go from up to essentially flat today, the VIX is shooting upward in stronger outperformance of the correlation.

As far as the SPY Arbitrage goes, that is not positive for a positive SPY arbitrage, the other two assets would be HYG which is nearly perfectly in line with SPX so there's no relative outperformance vs the VIX alone making the SPY arbitrage weak between those two assets, but there's a thrid in the model, VXX, Short Term VIX Futures which would also need to be underperforming for the SPY Arbitrage to positively effect the market even though it was extremely positive yesterday and had virtually no effect.

TLT above in blue (20+ year Treasuries) vs the normal SPX price (not inverted) shows treasuries outperforming as they should be down, I addressed this at length in last night's post,  10-Year Yield (Bemchmark) vs. the Market which clearly showed Yields of Treasuries clearly calling the 2007 top, the 2009 bottom and is now showing the same behavior seen at the 2007 top even though it should be higher because of the F_E_D taper.

As I reminded last night, Yields move opposite treasury prices and the market tends to be drawn toward yields so TLT up today suggests a flight to safety move which is what called the 2007 top and the inverse of that, a risk on move that called the 2009 bottom and again we have the same scenario now as at the 2007 top as shown in detail in last night's post. The point simply being that for today, there's a risk off or flight to safety in Treasuries despite very flat, dull market action WHICH IS MOST CERTAINLY DUE TO QUAD EXPIRATION, YOU'VE SEEN NORMAL WEEKLY AND MONTHLY STOCK OPTION EXPIRATION AND THE MARKET PIN IT PRODUCES AT MAX PAIN, NOW ADD 3 MORE OPTION CONTRACT TYPES.

I'm curious to see if the 2 p.m. area has the typical effect we see on normal options expiration today as the last 2 hours after the pin is lifted, we tend to get some of the best information of the week.

 Here's TLT with the SPX inverted so you can see where TLT "should be" if there were no flight to safety or TLT move higher under normal correlations.

Yields (as explained last night which move opposite treasury prices) are down for the 10-year, and as we've seen with leading indicators, yields tend to pull equity prices toward them like a magnet until they revert to their normal correlation.

This is 5 year yields which I normally use for shorter term market direction, they are negative and this is a negative for the market as again, the market tends to be pulled toward yields, thus the lower yields at the 2007 top took prices of the averages lower, just as they are now on a macro basis and higher yields at the 2009 bottom pulled equity price higher.

Also...

 Professional trader sentiment is down on the day, not following the SPX.

This is also interesting, the SPX (green) vs the 9 S&P sectors, as of this capture only Energy and Healthcare were up, among the laggards Financials, Tech, Consumer Staples, Consumer Discretionary, Utilities (which isn't surprising after they tripled the SPX's performance this week as a Flight to Safety group), and Materials.

There's a legend at the top showing the colors and the S&P sectors for each if you click on and zoom in to the chart.

This is a form of Rate of Change between the SPX and Financials for the day (as of the capture, this post has taken some time).

As far as market breadth, the NYSE TICK Index is VERY tame at approx +/-500 which is about as tight as it gets, essentially almost zero movement among stocks, no trends.

 My custom TICK vs SPX indicator shows roughly the same, breadth following along almost exactly with the SPX which is unusual, especially on what is normally such a high volatility day.

 The Russell 3000 Most Shorted Index (red) vs. the Russell 3000 (green) showing no short squeeze activity, in fact they are range bound on the day and underperforming since the F_O_M_C announcement's initial knee jerk Wednesday which has seen ZERO follow through.

And a closer look.

This dullness (although there are some interesting trends most people probably wouldn't notice) extends not only to the averages, but a number of assets as can be seen by the TICK index.

Hopefully after 2 p.m. like normal options expiration, we'll start to get some more interesting, useful data.

As of now what we know is VIX is starting to come alive from the depths of lows not seen since Feb. 2007 on Wednesday's F_O_M_C and from all appearances, the move off the F_O_M_C was a knee jerk reaction, but not one grounded in any real buying, but rather fluff short covering, now who the sellers were is a different matter, the 3C trend since the break above the 3 month range and the psychological SPX 1900 has been extremely negative so it would not be surprising if strong hands were providing supply for shorts to buy to cover on the knee jerk. It also seems fairly clear that this was a knee jerk reaction which are typically wrong as I post before EVERY F_O_M_C event as there has been zero follow through.

As for the larger macro story beyond the long term 3C charts (and others), I think the CPI inflationary data taken with gold's outperformance (silver too) and gold miners taken with the Yields data posted last night has some very real , very negative implications for the market.

The F_O_M_C policy announcement has been called "Boiler-plate", essentially just the norm, nothing interesting, however the inflationary trends and the performance of gold/silver seem to suggest the pros believe the F_E_D will be FORCED to hike rates sooner than later, and perhaps the F_E_D does as well as both 2015 and 2016 forecasts for the F_E_D funds rate both increased again although that is little discussed.