Leading Indicator Update

We'll take pieces of the puzzle wherever we can find them, but it might be worth revisiting the February cycle which was very well aware of the March and June F_O_M_C meetings before it began as well as a rough idea of when to expect the first rate increases. Being we have seen homebuilder stocks under accumulation nearly 2 years before they gained nearly 5000%, I think it's safe to say the market has a pretty good idea where it's going and when in the very near term, especially when were talking about a bounce in to the F_O_M_C.

Quickly revisiting the February cycle, these were and I see no reasons to change opinion, expectations...

 Since 2013 and even 2014, the market ha largely been lateral, you can see this in how many times we have posted since the start of the year that the market is either at a gain year to date or is once again at a loss year to date as the Dow is at as of right now ( a loss year to date) and the SPX is just a fraction away from the same. The longer chart/trend 3C chart through this flat-ish range is the same concept seen on intraday charts or even daily charts, distribution and accumulation tend to occur at flat ranges more than anywhere, despite the large volatility in the range.

As for the Feb cycle, again this was a move to the upside we anticipated as the 2015 range was not going to allow the market to move lower until all of the goodies above the range were taken out in a head fake move, one which the SPX and other averages have already completely retraced. It's the move below the range that really sets the market up to challenge the October lows and break them. I think the market can and does set up cycles that in turn end at key points such s today's F_O_M_C. 

We have stage 1 base/accumulation, stage 2 mark up, stage 3 top and have entered stage 4 decline with a counter trend bounce which is common, we saw the same last September/October. in the stage 4 decline.

There's little reason to doubt this cycle continues and as it was meant to take out the 2015 range before the market could head lower, it has done that now. I see no reason to expect the cycle process to just halt here, the market knew darn well what was coming and I believe plans cycles out far in advance, in some cases, more than a year.

The general Broadening Top and the new normal reaction inside it are what we seem to be observing in the SPX. Typically 5 points of contact are made before a break of the top. The October low set the higher high/lower low of the broadening top and the late stage's head fake move has already occurred.


Since yesterday's Leading Indicators and Perhaps a Surprising Change in Dollar Direction update, this is what has changed...

As for the F_O_M_C, you probably know I have a dichotomy of thought between what's reasonable and what the F_E_D needs to do. To me it's not reasonable to remove policy accommodation as we see the worst start to macro economic data on the year , now at a new record low. However it doesn't make sense that we have been sitting at extreme emergency accommodation of ZIRP policy for 6 years when we haven't been in extreme mode. The F_E_D painted itself in to a corner. As most of you longer termers know, I have suspected the F_E_D was starting to look for a way out the same day they announced QE3, in fact maybe we'll go back to those posts. Everything since then has moved us closer and in to that reality. So while it doesn't make sense to tighten in this economic climate, it also doesn't make sense to be at emergency extremes this long, the F_E_D painted itself in to a corner and I think realized that some time ago and has been moving to undo that since.

I suspect the F_E_D is more afraid of something they see coming and their ability to respond than the damage of a rate hike as the macro economic data for 2015 comes in at the worst start of a year on record, whatever they are afraid of, it sounds pretty scary.

Updated Leading Indicators...

 First Pro sentiment indicators have fallen off a cliff, they were supportive for a bounce, but since it didn't happen with the R2K last week, they have been moving out of the market and today there's a sharp move in one of our 2 sentiment (Pro) indicators.

The second is doing the same over the past couple of days as the market just couldn't get the counter trend (normal) bounce off.

Commodities are still leading negative in the general and specific area.

High Yield Cirp. Credit had been supportive of the "W" base, but then fell apart.

And High Yield Credit has done the same.

In fact, PIMCO's HY Fund has done the same as well. This is what I was looking for, all 3 of my credit measures (broadly) confirming.

It doesn't look good.

Remember though, Q1 window dressing is coming up, we'll see what we can, it may be a bit too early, but there will be window dressing on the quarter as always. Now for the F_E_D in 15 minutes.