Leading Indicators

Things are making sense, but you really have to work for it...

It has been like torture trying to get anything meaningful out of the charts today (as well as watching the charts today, which is where it gets dangerous as complacency in a dull market is always the calm before the storm), which is somemwhat expected (reversal process) and has led to the early lack of movement, but since the Energy sector divergences, we have seen some movement.

Otherwise, I've been through my watchlists several times looking for intraday clues, while it seems the larger picture clues are shaping up, the larger picture Leading Indicators are in a bad place for the most part.

As an example though of near term intraday clues, as I've been looking at everything, always careful  not to take a chart for more than its worth or as I call it, try not to torture the chart in to telling you something. The Leading indicator, commodities which is responding well to the Energy complex broadly today, has a clear correlation intraday.

Commodities intraday as a leading indicator are supportive of the SPX (green), but with Saudi Arabia confirming new highs in output, Iraq also out today with higher production expectations, what's driving the move in oil/broadly commodities as a leading indicator.

Try the $USD and weakness there today, although I view this as a short term reaction with the larger issues for crude in the near future being the increased Saudi/Iraqi output.

Remember as I posted last night from the April 2nd updates and forecast, we were seeing $USD weakness on the day which I said should be very "Short loved" and I expected a bigger upside bounce which we got, to be followed by a larger downside move, maybe even a lower low now that we have a lower high in the $USD's primary trend.

Why is this much more of an important indication than commodities benefitting intraday and the market to some extent as well from the weaker $USD?  You have to remember our broad $USD analysis as well as the JPY/Yen analysis as it relates to $9 trillion in trumped up AUM via the $USD carry trade and unwind and what that will mean to the market.

If you saw last night's post, Daily Wrap, I covered it again with links to recent forecasts and the $USD's move and more importantly the $USD's correlation to the market as represented last night by these two charts...

 Daily SPX vs $USDX (red) carry trade correlation. Remember the daily $USD 3C negative and the Yen daily 3C positive suggesting the unwind of the carry, to the tune of $9 TRILLION dollars in $USD based carry alone!

Closer term, the $USDX in red has been leading the SPX (green) as seen at the white (positive leading of the SPX) and red (negative leading of the SPX) areas.

If you recall the $USD forecast which I reposted last night in the Daily Wrap, it was for a near term bounce which was in line with the April 2nd market forecast and that was to be followed by a larger downside move in $USD, which has an obvious correlation to the market, but at the possible first lower low in the primary trend (with a lower high already in place), this has major implications for the carry trade and thus the market as the market HAS NEVER responded well to the unwind of the carry trade as that's what finances a big part of the rise in equities and bonds.

The $USDX Futures and the 4/2 $USD forecast of a near term bounce up, which se see followed by a larger turn down which looks like it hit its pivot point at the negative divergence as it hit its highs on 4/13 and has started turning down, the likely reason for the energy complex bounce intraday today.

However the larger issue is above on the $USD vs. SPX daily and 60 min charts reposted from last night's daily wrap, AS YOU'LL SEE, THE $USDX TENDS TO LEAD THE SPX AND WHAT ARE WE LOOKING FOR NEARBY IN THE BROAD MARKET?

As to the larger carry-based concerns that few in the market seem to be aware of (I wish this was as simple as looking at MACD and telling you which way the market was going, it's just not that simple and that's the attraction of Technical Analysis-LAZINESS)...

As I have already posted NUMEROUS times, I'll post again because IT IS THAT IMPORTANT TO LOOK BEYOND THE TREES (intraday) AND SEE THE FOREST (carry unwind of $9 trillion $USD).

 $USDX daily 3C trend with strong confirmation on most of the uptrend, but recent strong negative divergences in $USDX as it makes its first significant primary trend pullback in to a large 3C negative divegrence and upon closer inspection of the daily $USDX chart...

The first failure of the $USDX to make a higher high as it made a lower high (at the yellow "X") and according to our 4/2 forecast, should be making a stronger move lower after the bounce that should have and did take place around 4/2, refer to the 60 min $USDX chart above or to save you some time...

So far since the 4/2 $USDX and market forecast, we have the bounce that was forecast and as to the "Larger" downside move, we have the pivot/negative divegrence that is likely leading to the second half of the $USDX forecast lower on a larger basis, which could easily make a lower low within the 1-day $USDX primary trend, it would also serve as a leading indication for the broad market as you can see from the $USD vs. SPX 60 min chart above, thus the $USD's intraday weakness and Energy sector intraday strength PALES in comparison to the implications of a move lower in the $USD.

CONTINUING WITH LEADING INDICATORS...
Again, market weakness seems to be the theme of the day, even on a dull market day like this, it seems to need short term manipulation just to hold a mixed market that's not far off unchanged (tight range of the reversal process also forecast early this week and in last week's "Week Ahead " forecast of last Friday.

 This is the Spot VIX vs the SPX in green (although I have inverted the SPX prices in green so you can see the inverse correlation, which is made to look identical when SPX prices are inverted-thus showing you the relative strength or weakness of assets compared to the SPX like VIX today/above).

Notice ONCE AGAIN, just like yesterday, the SPX sees a SLAM lower which is part of the short term manipulation of the SPY Arbitrage.  Yesterday I predicted the SPY Arbitrage would be active based on the VIX action, once checked later in the day, it was responsible for supporting half of the SPX's gains, today....

As you can see the VIX is slammed harder in to the afternoon, the SPY Arbitrage becomes more active and is responsible for up to $.75 of the SPY's trade today, although the SPY was only $.55 higher at intraday highs, meaning the SPY Arb. kept the SPY from losing additional ground today without the short term manipulation of VIX, HYG and TLT.

The message of the market once again, as seen yesterday, is there's not enough institutional support to even hold a miserable +.20% SPY gain without manipulating the market to the tune of at least a $.55-$.75 added gain from that manipulation (all short term).

Here's the VIX slam today, you may recall yesterday's.

The VIX slam yesterday on the open and the VIX Whack-a-VIX today, activating the SPY arbitrage scheme.

VXX, short term VIX futures also has seen even worse intraday relative performance, as this is the true asset involved in the SPY Arbitrage scheme (along with HYG and TLT).

I was thinking, considering the reversal process, why would there be a specific, purposeful move to lift the market averages within the reversal process which is typically a tight range? The first thing I thought of is why the reversal process exists... It's to fill position whether long or short before a pivot reversal- the same as we are looking to do- and what does Institutional money use as a reference to grade the fills that market makers and specialists obtain in order to judge whether it was a good fill or not (also whether the market maker or specialist in the specific asset will get further business)? VWAP-"Volume Weighted Average Price" is the industry standard...

Look what happened to ES/SPX-Emini futures just before the cash open today, it dropped well below VWAP, no fills of either selling longs or entering shorts would be looked upon favorably by institutional money so far below VWAP, thus the reason for the Energy based or $USD based move to higher levels. The standard is at VWAP (white box area), a better fill for with transaction is ABOVE the standard deviation of VWAP (green area), which is one of the reasons the reversal process tends to be such a tight range, it's at VWAP. This also tells us something about where we are in the process of this particular move if positions are being filled at the reversal process and VWAP (hint-toward the end).

As for our custom Leading Indicator SPX:RUT Ratio...

Note intraday there''s no confirmation of the market move, which would make sense in the context of the larger signal in the indicator, the LEading Indication for the entire 4/2 forecasted move. I showed last night how it led in to the 4/2 area and is now in a leading negative indication within the overall trend, today just makes that worse-1 of the 3 indications I've been looking for.

Yields intraday

 The 5 year yield moved up earlier to support the market, it got it above VWAP, and has since deteriorated.

The larger leading indication we have been watching for...

 5 year yields negatively dislocated lower which act like a magnet for the SPX and pull prices lower.

10 year Yields

 Again intraday an attempt to lift the market up to VWAP and after that happened yields heading lower.

As far as the Leading Indication for the trend...

 From in line at the April 2nd forecast and first part of the move to leading lower.

30 year yield...

The EXACT same trend as the 5 and 10 year.

Pro sentiment...

 Again our pro sentiment indicators which were in line early in the move as we watched for them to diverge from the SPX trend, have done so for another consecutive day.

HY Credit...

 HYG's 3C chart has been forecasting a move lower in HY Corp. Credit, one of the most over-used short term manipulations in the market. Note the leading negative position relative to the SPX, this is what we re looking for in Leading Indicators.

And HY Credit which fell out of bed yesterday with the SPX showed early support like almost all other leading indicators until VWAP was achieved and then headed down for a second day, dislocating negatively for the second day since the trend started on the 7th.

Again, while perhaps not at the exact pivot considering monthly op-ex tomorrow and the max-pain pin and all of that free money or premium on worthless options expirations, we have been moving consecutively closer. I think if you don't understand the importance of the $USD divergence, go ahead and email me, don't feel embarrassed about the question, it's complicated if you are not use to the carry trade and how it works and most aren't, but understanding this aspect is crucial, especially where we are.