Market Update-Leading Indicators

There's definitely something to the European close, it seems the early gains or overnight gains in the US are faded at the European close, although I suspect there's more to it than just that.

SPX 2000 holding to the close or not is really not an issue beyond media headlines, any way you llok at it, there's no follow through on the move above, there's no breakout buyers, there's no short squeeze and volume has gone from consecutive 40% below average to -45% below average to 55% below average to new low volume for the year 2 days consecutively after the low volume the preceding week. The R2K is the only performer out there today and that's because it has laggged badly.

I think people put a bit too much emphasis on catching "the top", despite it being a 0.15% move, which if you wanted to, we warned of the base several days in advance, we warned of the bounce almost a week in advance and almost all of our upside targets posted 12 trading days ago are hit. PErsonally though, with a move that is above 2000 with these kind of technicals, I'm long gone and waiting for the pivot trade set up (I did play a few piggy back longs, but for what they were, speculative as the market has shown us through internals).

Other than the normal reversal process, which may be changed with a +2000 close as that can serve as a head fake move, I think a lot of the indications of where the pivot is other than a very obvious head fake move, will be found in the same two places the base and bounce were found a week ahead of the actual move, that's in the manipulative market lever of HYG and maybe more importantly in market breadth.

July 31st was the first time I posted that despite all of the red flags in the market and a SPX that was down 2 percent that day, the market was deeply oversold and ready for a bounce and that wasn't based on the -4% drop just preceding, it was based on breadth uglier than ever (20% of stocks above their 40-day moving average). Thus I think this too will be one of the main areas we see significant changes such as those posted last night Daily Wrap,  not a single breadth indicator has improved since last Tuesday despite any gains the market has made since then. This is not an interesting aside, this is the same kind of information that led to the July 31st  after hours warning of a bounce coming , Daily Wrap still an interesting read.

As for HYG, this is one we can see during the day...

 Yesterday's HYG (blue) vs SPX (green) break at the European close losing SPX 2000 and by early afternoon HYG seeing short term accumulation apparently to give it another shot using the lever of HYG, note how they line up almost perfect today (arbitrage between algos interpreting HY Credit as risk on and equities as risk on. HYG led the bounce in much the same manner.

 Intraday arb between HYG and SPX. There's no coincidence there.

HYG led the market's base by 4 days and led through most of the move up, the lateral turn to the right in HYG or the reversal process is now on its seventh day,  again HYG is leading the market, but unlike the bullish leading in early August, it's moving toward bearish leading ...actually already there.

 The 2 min chart's trend is probably the easiest way to see HYG's underlying trade as a manipulation lever.

The 5 min chart just shows the depth of the distribution in the reversal process, again non the 7th day today.

And HYG over a longer period was never given enough gas to move these charts in the 15 min + range, it was always meant to be a manipulation lever which was obvious while the market base was still in a choppy/lateral and slightly falling trend.

 HY credit is giving out as well, interestingly though the sharpest areas of selling at right at the European close.

 And certainly interesting today was the VIX's outperformance vs the market (SPX prices inverted to see what the normal correlation should be-they should move together).

This even as SPX has captured 2000.

The same with VIX Futures, protection is obviously being bid.

VIX's daily chart is one of the better examples of a reversal process along with HYGs.