Futures and Leading Indicators

Earlier in the week and numerous times in the past I have said that the 5 min Index futures' charts divergences were a minimum for me to take a TRADE, we quickly got those for confirmation and we have some other interesting things going on. Leading Indicators are proving the concept, but also are giving us a message, right now it's very early in that message so although I understand what the bias is, I don't yet understand what the timing is as they are rather new.

There are quite a few charts here so if you don't have time to look at them now, maybe swing back later as these are probably very pivotal in understanding short term trade, the Week Ahead as well as how you can use the price movement right now (not by chasing it) to your advantage.

Lets take a look...

What I'm considering is multiple timeframe analysis and multiple asset confirmation.

 As already proposed, it seems as soon as 4 p.m. Tuesday hit, we already started seeing accumulation for Oct. 11st which is where I expected some accumulation and a bounce to start forming because the accumulation would have to wait until the Window Dressing period had passed, there's no point in selling poor performers to get them out of your portfolio in your holdings filing only to add them back in accumulation for a bounce. The end of the quarter, which I'm not entirely sure where it ends (may be different for different types of funds) for reporting, but I suspect 4 p.m. on the last day as there were signs of accumulation right after Tuesday's 4 p.m. close.

In any case, the bare minimum 5 min chart (NASDAQ 100 futures) above is in place.

We even have a strong SPX Futures 15 min divegrence, again note the heavy accumulation late Wednesday when I made the quick end of day changes out of SRTY and SQQQ and in to URTY and TQQQ which paid off yesterday alone and continues to today.

 NQ (NASDAQ Futures) are also confirming the divegrence on a 15 min chart so this looks to be a strong divegrence, even though a fairly small base.

As mentioned earlier, get use to seeing sharper bases like this as counter trend rallies in a declining market or bear market are quick, rip your face off and very strong rallies, they have to be to have any effect.

And the Russell 2000 Futures (TF) also confirm.

We have positives out to a 30 min chart on ES above.

Also NQ

And TF, that's multiple timeframes and a strong divegrence itself even though the base is small. How is this possible to get that much gas in the tank in such a short period? It was the size of the declines and all the stops they hit, look at volume as these were being accumulated. As I said at the time, "There's huge supply available at cheap prices" and I wondered why traders never ask themselves, "Who's on the other side of this trade?" Someone is and that;s an easy way to accumulate in size , quickly with apparently no one catching on to what they are doing as everyone is focussed on price rather than underlying trade.

 We even have a 60 min positive in SPX Futures, however...

NQ and TF 60 min charts are closer to in line.

So the feeling I get is that this bounce has the capacity for a significantly higher move than what we've seen thus far, but does it pullback and widen out its base?

I also mentioned treasuries this week looking like they are seeing rotation out of their safety and in to risk assets, this is 30 year treasury futures on a 5 min chart with a negative divegrence

 ... and look at the day, out of T's and in to Index futures.

 The 15 min 30 year Treasuries also have a leading negative divegrence, so I'd expect to see TLT lower in the days ahead, but there definitely looks to have been rotation from safety to risk, which I would think wouldn't be worthwhile for a 1 or 2 day bounce so again this points to a bigger move than what we have seen thus far.

 Even the 30 min futures show a negative divegrence.

And as far as multiple asset confirmation, the 10-year Treasury futures on a 30 min chart also have a negative divegrence.

 As do the 5 year T's, which is what we use for a leading indicator, the 5 year yields, so a dropping 5 year treasury means a rising yield and they tend to attract the market toward them like a magnet, so more leading indications of a higher move.

As for TLT, the 20+ year Bond Fund... I have to wonder how much of this may have to do with PIMCO redemptions as Bill Gross, co-founder of PIMCO in 1971 just left the company to join Janus, thus there are bound to be redemptions just from loyal clients who want to follow him to Janus,. The question is, how much of the 3C signals of distribution are PIMCO liquidating to meet redemption calls (while  bill Gross gets to pick up the very same treasuries on the cheap) and how much is rotation in risk off to risk on?

 TLT 30 min showing our August 28th "pullback" call at #1, then at #2 our call for the end of a constructive pullback and gains from there  with more recent negative divergences like the Treasury Futures above. Again, the same questions regarding PIMCO swirl around.

 TLT 5 min negative and a turn down

 And the sharper TLT 2 min negative with a little support today, this makes me wonder if we see lower prices today and whether those are op-ex related or perhaps base widening or just messing with sentiment before the weekend and taking the market higher early next week.

My custom VIX inversion indicator is not seen above as there's no signal, but the custom SPX/RUT ration shows every confirmation/non-confirmation signal that has guided the SPX above with a current positive signal in the indicator.

 HYG, High Yield Corp. Credit's longer term picture as it leads the market since June and in to our August cycle , it once again is leading this bounce as well.

Here's a closer look at HYG's positive divegrence vs the SPX, again another sign of early warning that allows us to enter at the best prices and lowest risk.

 Look at the HYG/SPX correlation intraday!

And HYG's divergences, a 10 min positive so there's good support from HYG.

The 3 min chart is in line or better

The 1 min chart doesn't look like the market is going to lose much ground today, at least thus far so the pullback and wider base theory don't look strong right now.

 Longer term HYG's 4 hour chart should leave no question as to where this market is headed.

Sentiment is all over the place, our first indicator has a nice leading positive for the bounce

Intraday it has a slight negative, again, the question of whether a bigger base is coming,  which would be useful to any who wanted to enter a leveraged long ETF.

Our second sentiment indicator seems to suggest we do see near term, maybe an intraday pullback.

Right now yields are perfectly in line with the SPX, however if the Treasury Futures (5 year) charts are correct, then yields should rise and they tend to pull the market like a magnet.

Finally HY Credit put in a leading positive signal, but looks a little like it's in consolidation move here.

The questions are pretty simple, I do think we get nice additional gains in to next week, but do we pullback a bit today to widen the base, if so, the gains could be even larger than I anticipate at present and you may have a chance to enter or add to long trade positions.

As we see weakness building in, like the Sentiment chart above, we'll want to watch for more of that as that's our key to start entering and filling out short positions, many of which are still in set up mode and just needed some upside market support for near perfect entries from a risk/reward and timing perspective.

This is a good baseline to judge additional market updates by.