Leading Indicators

I know you have seen many of these and they seem meaningless until they have meaning, well we've been using them for years and when they are screaming like this, they are far from meaningless and by the time they have "meaning", as in price has caught down to their warnings, well by then it's too late to have profited from their leading forecasts. We are not gamblers, we take on risks, but high probability and lowest risk possible like a card counter who has an edge,  but the fact remains, YOU GET PAID TO TAKE RISKS.

That's why right now, more than any other time when volatility was expected to increase suddenly just a little over a day ago (Tuesday)which would be a marker of a change in market trend and when head fake moves were mentioned just Tuesday night, many seem to have taken place in some form between today and yesterday, not as a Monday morning quarterback or rearview mirror analysis, but in front of the event, I offer this same post in the same spirit, not once the event has passed and it's no longer profitable and anyone can tell you what happened, but before hand, I would plead with you to take these charts more seriously now than ever.

These are by far, some of the largest dislocations and divergences seen not only this year, but over the past several years and if you think my warning to be careful, that this rally was going to a face ripper was perhaps less than you expected, let me tell you that the signs, signals and charts right now are far and away long beyond what I saw in mid-October when I tried to anchor expectations and let you know this would be a rally that would scare you, even though you knew what it was for and had advance notice.

Short term 3C divergences can be overrun in situations like this, these charts are solid. Compare them to Tuesday's Futures Indications post .

 The Custom SPX/RUT Ratio Indicator not only predicted this move in advance, but called the top as well at the red line and is showing the SPX should have made a lower low, below the first white hash to the far left to be confirmed.

I'd expect that move is coming.

VXX and VIX in blue vs SPX in green move opposite the market so often I have inverted the SPX's price (green) so you can see what the normal correlation is and where the VXX Short term VIX futures and spot VIX either outperform (higher than SPX) or under perform (,lower than SPX).  This chart is not inverted because the relationship is easy to see.

Today the VXX was bid and that kept it from making the new low it should have this morning as the SPY moved above the red line, the VXX should have moved by an equal amount below the red line.

 This is spot VIX and the relationship does show the SPX (green ) as inverted, note the VIX's strength moving higher in to higher SPX prices over the last few days, it even leads as the SPX makes local lows today.

This chart posted in the Daily Wrap shows the two strongest buy/sell signals of the year using my custom DeMark inspired buy sell indicator, it calls the VIX top and market bottom in October perfectly with a sell signal and just recently put in a VIX (market top) buy signal, these are the only signals this year so they are strong.

Sell at orange and buy at green, remember the VIX moves opposite the market so a buy signal meaning VIX up means market down.

 The ABSOLUTE CRASH in HYG High Yield Corporate Credit. As usual they'll use HYG as a lever to move the market until it's too risky to do so and then move out at break neck speed. Look at the recent HYG support of SPX and the last two days (especially today) utter selling in HYG.

 This is a closer view showing HYG's ramp Tuesday that ended with a lift of the Dow from red to green by a measly +0.007%, all of that ramping and a VIX slam for less that 1/100th of a percent.

 Long term HYG divergences and tops, the current dislocation is by far the largest.

 HY Credit 's longer term trend vs the SPX and signals and again, by far the largest dislocation.


These are the signals and charts that are calling for not only what I have expected since BEFORE the October rally, that we'd see a strong rally and a stronger decline making a new low, but these are even larger than that, especially compared to the same signals that told me in mid-October the rally would be a scorcher, we are well beyond that.

 Professional sentiment selling off today in to the rally, but not just today, this is a trend If this is what the pros are doing...?

 Pro sentiment since the October rally begun

 Pro sentiment's trend of divergences at major market pivot/tops.

Look how bad this one is compared to the rest that had EVERYONE calling a bottom, ONE OF THE REASONS I FELT WE WERE NOT AT A BOTTOM OR A BEAR MARKET BREAK YET...too many people calling for the same thing at once.

 30 year rates vs the SPX, but I don't think they are supporting the SPX, although it may have had that effect, I think they are accumulating in 30 year treasuries and TLTs at the lows, remember rates move opposite the bond.

And the 30 year rate trend and its massive dislocation from the SPX.