Leading Indicators

I'm going to post a 2 part market update so intraday charts are not old by the time I get them up.

So far the market and even the USD/JPY look less like they just got the gift that keeps on giving and a bit more like the realization that #1) the controversial Bank of Japan (BOJ) vote (controversial not just for other countries, namely China, but the US, Europe and Germany in particular-Europe's manufacturing powerhouse as well as the Japanese people who will feel more suffering under a consumer crunch and loss of buying power, but controversial inside the BOJ itself that narrowly passed the measure with a 5 to 4 vote) is much more about Hundreds of billions of dollars (in Yen a lot more) of JGBs (Japanese Bonds) being sold in to a bid-less, illiquid market. As previously noted last week, the Japanese bond market over the last year has lost all liquidity and is akin virtually to a stocks that trades 5k shares a day on average with several consecutive days having passed in which not a single trade occurred. Imagine what happens to the holders of Japanese bonds (not just the pension fund, but retirees, those saving for retirement, institutional funds, etc) when the GPIF changes allocation from primarily JGB's (60%) to a minority holding of JGB's (35%) and tries to dump those holdings in to a market that sometimes doesn't see a single trade in a day.

The more analysis I read about this decision, the more it seems like Shinzo Abe and the BOJ's Kuroda have committed to either beating the Japanese deflation monster (although there are obviously other reasons the decision was taken-JGBs from the GPIF) or facing the increasingly more likely outcome of a failed state. It also seems the Japanese people are so fed up with the suffering inflicted either by Abe in the form of sales tax or the debasement of the Yen by the BOJ, that it's unlikely Abe will survive the next elections, thus whoever inherits the unwind (like Yellen did from Bernanke) will face a nearly impossible task as Kurooda cavalierly dismisses the difficulty of policy normalization with a single sentence.

We'll see how it plays out, but I wrote about this years ago when they introduced QE-Zilla and the signs of it failing were there then, I still have the posts linked at the top right of the member's site under "A Currency Crisis" , which years later this appears to have blossomed in to and just getting started, nearing all out currency war.

As for Leading Indicators...

 VXX Short Term VIX Futures for a 4th day over the last week have outperformed the SPX (green), until on an intraday whack-a-Vix, the VIX was smashed lower to pump the SPX, this is odd behavior as this is usually seen at the close just like last Friday.

 Spot VIX was knocked lower as well, it didn't respond as badly and it has outperformed all day long including at the attempt to crush VIX and ramp the SPX, if VIX was moving as its normal correlation suggests, it would be below the white arrow (VIX in blue).

Not only did we see strong VIX futures accumulation last week, but as most who don't have the tools we have, they see the outperformance or the bid in VIX futures via the outperformance correlation.

Professional sentiment not only led the move to the upside as the SPX was making new cycle lows in mid October, but moved up tick for tick during the mark up stage, this negative correlation/divergence vs SPX (green) is intraday, the pros are doing something else.

 And on a longer term basis, there's a break in the correlation right about where they started using HYG as it looks like the pros had enough of the move and were getting uncomfortable with risk any higher.

Our second pro sentiment indicator shows the same both intraday, a near sell off among pros vs the SPX and also longer term as well.

As can be seen above, but the notable move is the last day or two.

HYG intraday (blue) still below Friday's close and divergent vs the SPX, this after a negative divegrence around Wednesday last week warning of lower HYG prices which warn of lower market prices.

 HYG vs the SPX at each major top pivot, note how HYG clearly goes negative vs the SPX before the SPX moves lower. The most recent divegrence is the sharpest by far, it's simply harder to see until it is complete, but look at the relative value at all 3 tops in the SPX and the relative value of HYG at the same areas, not to mention the divergences there.

 HY credit which is not manipulated like HYG as it is not liquid enough to be a ramping lever, has also broken lose from the SPX's correlation, another indicator that led the market to the upside as we were making new lows.

Our SPX/RUT Inversion which is way out of sync big picture and intraday as seen above, the VIX Term Structure is back below inversion, this is what told us it would be a stronger or more impressive rally than the early August, otherwise it has been back below a buy since about the 16th or so.

This is the 1 min USD/JPY, no major divergence, but price has obviously mellowed from early this morning.

I have mentioned many times over the past several weeks the negative divergences in the $USD, in fact the week before it broke its 12 week consecutive win as the F_E_D was becoming increasingly concerned, it's still there and a lower $USD means a lower USD/JPY.

30 min $USDX

While the 30 min Yen is in confirmation mode longer term, but starting to change.

$USDX 7 min is negative implying losses in the $USD to come, how I don't know and this is where the Yen starts acting up.

The Yen with its first serious short term 7 min positive divergence, remember that new divergences always start on the shortest timeframes and work out.

Yen gains would send USD/JP Y lower just like $USD losses, both at the same time would do more damage.

Yen intraday positive

 $USDX intraday negative

And some strange dislocations between the USD/JPY and ES (purple), they started seeing ES correlate and follow the pair at the start of pre-market at 8 a.m. today, ES was weak at the USD/JPY's intraday high and vice versa right now.

More to follow...