Thursday, August 14, 2014

HY Credit is Starting to Give Out

Other than follow the divergences in the averages until they start chewing away at the base divegrence (mostly in the 10-15 min range) the other things I can look at are the flight to safety trades like Treasuries or flight to protections like divergences in VIX futures and how SKEW acts, I can look at the enablers like HY credit which we have noticed has been leading the market since the base was forming making it pretty clear that some bounce was coming.

Well those enablers are giving way now in a more serious manner which I take as, they will soon be gone from those positions as they don't want to be caught in them when the market cracks back lower and as those enabling assets crack, the market has less and less support.

Looking at the biggest enabler and leading asset for the market, HYG, High Yield Corp. Credit...

 SPY (green) vs HYG (red). To the left the two are moving in sync, just before that HYG was leading the market lower. From the formation of the base that we are currently bouncing from, HYG has been leading the market most of the time (it tends to be one of the biggest manipulation levers anyway other than the carry pairs).

However all is not what it seems in either the market or HYG.
 This is the intraday trend in HYG which has deteriorated the last few days, but not a very interesting signal taken alone.

It's the migration of that negative divegrence that is interesting and how quickly it is turning. The 2 and 3 min charts are already leading negative and now...

Today has seen the 5 min chart start leading negative. Also a 5 min chart making this kind of move intraday is indicative of large distribution activity today by institutional money.

As I said at the top, they don't want to get caught holding HYG when the music stops and are packing their bags now which will have a direct effect on the market if not a direct correlation.

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