Quick Update (Index Futures)

You may recall the EUR/USD chart, specifically the 60 min one in which I said according to the correlation ES was at least 15 points above the correlated value. As you'll see below the approximate 45 point drop since Monday morning's weekly highs has penetrated below the EUR/USD correlation, although EUR/USd seems to be showing some very slight near term strength developing that was on the fence a bit earlier.

 This is the divergences intraday (1 min) for EUR/USD, they were a little on the fence, but have since recovered and I double checked $USD and EUR, and both confirm, although I'd call this a "soft" divergence. In any case, you'll see who leads who by the nose below...

 This is EUR/USd in candlesticks and ES (SPX E-Mini Futures) in purple. I have been watching for near term reversion to the mean which happened for sure this morning, but although there was a brief period of correlation (green box), note ES continuing to fall in a parabolic decline.

As you know, I rarely trust a parabolic move up or down as they tend to end in the same way they began, just in the opposite direction. However, a better argument can be made for a parabolic drop holding as Fear is a stronger emotion than greed, thus the upside parabolic moves are powered by greed, the downside by fear, which is also why bear markets tend to fall at least 2.5x faster than bull markets rise.


This is the 7 min EUR/USD vs ES chart, again note brief reversion to the mean before ES tumbled even more. In this case, ES is NOT leading EUR/USD, but in the recent past EUR/USD has led ES so if there's a bias here, it's to the upside on a bounce, but the main chart I have been looking at is the 60 min chart as ES/ or the broad market, over ran the FX correlation and reversion to the mean was just a matter of time, but like all things in the market, it moves in extremes and severely overshot.

This is the 60 min EUR/USD vs. ES, note the downside overshoot, which is perfectly normal, it's just the excess of emotion in the market as well as the flawed structure. I'd say margin calls and the like although we know generally it's too early for that other than proactively heading them off.

The Carry trade unwind is going to be more and more a part of our analysis in the coming days and weeks ahead, it was the one thing I expected to see more than anything else, even HY Credit diverging, on a true primary bear market turn.

As for the Index futures, you may remember from yesterday and earlier today, the SPY looked the best on a positive divergence basis and the QQQ/IWM looked the worst, that is reflected here too in intraday futures.

ES is starting a leading positive divegrence and just as TICK not only hit the selling climax extremes associated with short term capitulation...but also a change in price's ROC to lateral from fiercely down.

 NYSE intraday TICK Index shows the internal trend with a downtrend early and then a massive area of extreme readings of -1500 or so, then recently as things have calmed down, we have a slight uptrend in TICK.

 NQ intraday positive divegrence forming, remember right now EUR/USD's correlation is sitting above for the first time this week.

The TF/Russell 2000 futures chart has a slight positive, although I would not have posted it if it were not for the ES/NQ charts above this one.


While I still would not trade this long as it introduces unnecessary risk that really is greed or boredom, both of which are deadly to traders, I did have enough faith to let go of short term leveraged Put positions to take those gains and look for a better entry rather than just let them potentially go red and turn back down.

I'll have a leading Indicators update out shortly.