Strategic Market Update

I'll tell you on a strategic basis, Leading Indicators are screaming even louder than they were at the October lows before this latest rally, and they were strong then as well which is one of the reasons we knew it would be such a strong move. After a quick look around on an intraday basis, I'd say this is clearly just part of the reversal process, but leading indicators show we are pretty deep in to it.

I didn't find anything extraordinary with the VIX, HYG as mentioned moved and I suspect it's to finish the reversal process as 3C signals and leading indicators have deteriorated so rapidly and strongly, I'l show some examples.

I believe the key to the exact timing will be 30 year rates / 30 year bonds and I'll show you why there as well.

Again,  I have no problem whatsoever being short here, I'd have no problem whatsoever with entering market correlated shorts like inverse ETFs of the major averages or of Small caps, tech, Financials. As far as specific stocks, at least 2/3rds (generally speaking) will move directionally with the market, but for any specific stock that is impacted by company news, earnings, etc., I'd look at those on a 1 on 1 basis.

The charts...

 The SPX/RUT Ratio is very negative on a big picture basis, clearly leading negative from the July decline. Intraday or short term, it had been in line a few days last week, it's not anymore and is not confirming price at these levels, this indicator has been pretty spot on in terms of both short term, intraday and bigger market swings.

HYG is leading negative, way worse than this and certainly much worse on a primary trend basis (or what you might call a bull/bear market basis), Where HY credit goes, stocks follow. Believe it or not, the stock market is one of the smaller and least sophisticated market next to bonds and certainly currency markets, thus bonds and currency can tell us a lot about the stock market in advance, this is why I covered currencies so many times this week and over the past several weeks.

HYG was used to lift the market off the October lows, it moved up and the market followed until it started dislocating negatively, this is the reason we use the indicator, these signals are what we are looking for and this is the largest this year, MUCH LARGER THAN THE SIGNAL THAT LED TO THIS LATEST RALLY OFF OCTOBER LOWS.

 THIS IS WHAT I FOUND INTERESTING, it seems algos are set to key off 30 year rates, they have been since stage 4 decline that led to the October lows, which if you recall saw the Dow lose 1200 points in 3 weeks.

It's little wonder there were relative positive divergences at this mornings intraday lows as yields were leading right there, that likely explains HYG intraday as well, now they are almost perfectly in line with the SPX.

This is why I think for timing, following the 30 year treasury bond futures, TLT and 30 year rates is going to be the most enlightening for timing of a decline.

I'll cover TLT and 30 year Treasuries in a different post as the analysis there will be a well worth a post of its own, but just so you know what to watch that will have meaningful impact  on the market.

 As for the indicators we use to show us what professionals are doing (beyond 3C), these pro sentiment leading indicators we use are clearly showing they are not buying in to any risk one mood, in fact they are in a very risk off mood, not just intraday today, but as I've show...

On a larger basis and that's an extreme shift in sentiment, that's just pure selling vs the SPX (green).

Here you can see them following and even at points leading the market in the earlier stages of the move, but as I had said back then, this is a move to shakeout shorts that had become too thick, it's not a bullish move for the future, it's a means to an end and their actions recently show what that end is. Look at how they have consistently peeled off and have been in sell mode.

 Our back-up (double check) version is showing the same intraday and of course on the same bigger picture basis.

Leading Indicator (Pro Sentiment).

I'll have a 30 year update out ASAP