High Yield Corp. Credit (HYG)

There are some interesting HY credit charts out there, Energy, Financials, but the main HY Credit chart we use just because it's used so often and has had such a good track record and is widely available with liquidity is HYG.

Considering it just went red on the day, I thought I'd take a look at it. One thing to keep in mind is that there have been 3 small accumulation areas for small cycles, they are what has largely made up the bulk of the range-driven action through January, a time when the market is usually on a tear due to the January Effect of new money coming in to the market and the seasonal adjustment macro-data beats.

The base areas were Jan. 6, Jan 14-16 and Jan. 29- Feb 2nd, this is where we saw small accumulation in advance for the moves that followed. You might keep those dates in mind when looking at the HYG charts around those same time periods as HYG as a leading indicator is one of the better early warning indicators.

Additionally, last week's market momentum which was expected as the concept of a head fake move through a very obvious support or resistance zone in a popular asset is very high, in almost all cases no matter the asset , timeframe or liquidity, we see head fake moves about 80% of the time just preceding a reversal, the stronger those features mentioned above, the more likely a head fake move. Last week's was pulled off not on accumulation, but on a VIX smack-down at a time when there were a record number of net spec long VIX positions, kind of like pulling a short squeeze when short interest is the highest. Additionally a short squeeze was pulled, but as posted earlier today, the AII bear percentage is now at record lows, not much left to squeeze. So also pay attention to the signals through all of last week in HYG as those two forces were at work in the market (they gave HYG longs cover to move out).

 This is HYG's daily chart, through late 2013 to mid 2014 it was in line with the SPX during the period, but on a longer scale it was in leading negative position (price) as the Q2 2013 decline put it at a lower relative level on a larger scale than this chart.

Since there have been a series of lower highs and lower lows in HYG, which is important because Credit tends to lead the market and equities tend to follow.

1 min HYG through last week, the trend should be clear.

2 min HYG with a deeper leading negative today.

And the same 2 min chart in perspective with a larger view.

The 3 min chart leading negative especially through last week.

And the 5 min chart with the Jan 14-16th base and a positive HYG divegrence, then what comes next should be clear as a leading negative divergence.

 The 15 min chart with the next SPX base of 1/29-2/2 and what has happened since , especially through last week specifically.

Ad the longer term 2 hour HYG trend with lower highs and lower lows, with distribution at each of the pivot highs.