The Evan's Effect

So far it's too early to see a pronounced effect that jumps off the chart, but it's not too early to see the initial stages of an effect that's building and will likely soon jump off the chart.

After a quick glance at short term intraday charts, many assets were in line, nothing to really do other than manage current positions, especially if you are one of the shorter term traders who decided to play this bounce long, for others taking an approach like me and waiting for the signal to be given to enter new short positions near the end of this move, there's not too much to do other than keep an eye on the market and the assets that look most interesting when the time comes.

However on closer inspection of some indicators I don't usually look at this early, I found many that look as you might expect this morning on the comments and the move thus far, but I found a few that were a little different. While there have been clear enough divergences to tell us a bounce was coming, it has not had the same level of support as previous bounces including the most recent from the 12/15-16 lows.

Here are a few things I found which make me suspect that we will see support for the levers that are used to ramp the market, start to erode as holding them starts to become more risky. The  one thing the Evan's comments did was to assume the position of ramping lever, allowing the others that have actual currency at risk to back out while the Evans comment has nothing at risk other than his credibility.

I found this morning's NYSE TICK chart a bit strange...

 Today's TICK range is very narrow in the red trendlines, but it's not the narrow range, but the lack of the upside extremes seen just yesterday over +1250, this morning we haven't crossed much above +1000 and since this capture...

TICK is starting to fall out of the channel.

I looked at Leading indicators where there was slight outperformance on a relative basis between spot VIX and SPX, but more interesting there was some underperformance in HYG vs the SPX,  this is one of the main and most obvious ramping levers.

Additionally, although this is not screaming, there's a clear difference in 3C's ROC and watching intraday closely, you can see the deterioration already setting in HYG.

 HYG's positive which is almost always a dead giveaway that a bounce or some sort of move to the upside is building, at least over the last year or so, whereas before that it was more balanced between up and down moves, yet still effective. This is also showing up in the relative performance vs SPX, although still a small difference, it is one that is much different than the past couple of days and building.

 Of the different HY assets, PIMCO's has stood out the most as a leading indicator (other than HYG), which is why it's interesting that today, perhaps for the first time since it started posting a positive dislocation suggesting an upside move was coming, it has clearly diverged to the downside rather than follow SPX higher as it had been doing before the today.

On a longer term basis, these are several of the leading signals the PIMCO HY fund has shown us, leading negative, leading positive and today starting a new dislocation and unexpected if we were to believe Evan's comments.

There's no Carry trade support in any of the pairs, especially USD/JPY which seems to already have been effected by the 5 min Yen positive and $USDX negative.

 USD/JPY (candlesticks) vs ES (purple), obviously there's no correlation on the 1 min chart.

This is the USD/JPY since midnight last night losing ground, I suspect from the $USDX negative divergences we have seen recently and the Yen positives as well.

The 5 min $USDX and Yen still look like this...

 $USDX 5 min neg. div.


Yen 5 min positive div.

Thus it would seem the dislocation of Index futures from support of carry trades is going to weaken the base's (base for the bounce) foundation and likely to continue to do so according to the above charts.

Yields haven't been that surprising, although I wouldn't say totally without surprise...

 While the 10 and 30 year intraday are more in line with price, the 5 year is diverging. I would guess this is probably more a result of Evans' comments, however this is the start of some surprising signals, who knows what they look like in a few more hours.

 The 10 year leading the market higher and in line now.

And the same with the 30 year yield.


There are also some intraday 3C charts not confirming this morning.

None of these are smoking guns yet and none are actionable yet, although there is a change in character which is the important part. 

I suspect the Evans' comments were sort of slipped under the market as the lever while the traditional levers that have actual currency at risk can quietly back out, we'll see if I'm right soon enough, which will give us a more actionable scenario now that at least the minimum upside targets have been hit.