Market Update 2

This post has some more relevant information for the bigger picture, changes in character, correlation, etc.

 This is ES / SPX Futures (purple) tracking the AUD/JPY ($AUD was just down the most in 9 months causing a lot of weakness in AUD/JPY and pushing the $USD higher).

Note the correlation between the two, this use to be the correlation with USD/JPY which has flipped on its back interestingly as we are seeing some huge moves like the $106 run yesterday and a move to $106.46 just moments ago.

 This is a 30 min chart of the ES / SPX Futures (purple) vs USD/JPY and while it's difficult to scale with the limited settings I have on this platform, the first real break came last week in red to the left when USD/JPY surged and ES went in the opposite direction, something I was surprised by and wondering about the correlation there, or more accurately the correlation with the USD.

It's a little confusing because the $USD use to have a historical correlation in which most commodities, precious metals, oil and even stocks would move opposite the $USD until the carry trades were opened to leverage up a fund's AUM and gains. At that point and over the last few years, the market has been following the USD/JPY which means it has been showing the mirror opposite correlation to the $USD, a strong $USD has lifted risk assets, at least stocks.  Now it seems as if the old legacy correlation is coming back in to play as the F_E_D exits accommodative policy  and as the carry trades are unwound, even though a surging USD/JPY doesn't feel that way, but the $US Dollar Index is receiving a lot of strength from multiple currencies that are very weak including JPY, AUD and with the Scottish referendum, GBP recently.

 There's some question whether the algos have been reprogrammed to set up a USD/JPY correlation with bond Yields. Although I don't have yields up here, I have the bond futures which move exactly opposite yields. So in purple we have the USD/JPY and in candlesticks the 30 year bond, if you look at the recent correlation and remember yields trade opposite bonds, then yields would be moving nearly tick for tick with USD/JPY rather than stocks.

 The same is true of 10-year yields as the 1`0-year bond is nearly the inverse of USD/JPY.

 To a lesser extent and more recently, the 5 year bond / yield is showing the same correlation.

I do have an update on TLT as we called for a pullback on 8/26, that may be changing and it was only a pullback, not a change in trend. We'll look at that later and see if there's any future or forward looking correlations to FX.

 This is the 5 year bond future vs the $USD so you can see where the movement is coming from.

This is ES (again not scaled well) in purple vs the USD/JPY which it had a strong correlation with right through August , but something changed recently and the $USD and thus USD/JPY have blasted higher , yet it seems Index futures are nearly inversely correlated at times, so there's a good view of a major change in character.

 Again VWAP heading either lateral or down, but the market always struggling to reach VWAP after a decline, this is often indicative of selling/distribution/weakness behavior considering where price is in the cycle.

 Again, HYG (red) as a leading indicator vs SPY (green) is telling the story days in advance and has been right on with 3 of the 4 stages so far.

And once more, the deterioration of market breadth while the market is still high, not on a decline like last time and it looks worse now.  I'll remind you that at the lows of early August as the base was being formed, the % of NYSE stocks trading above their 40-day moving average hit a low of 20% which is worse than most bear markets.