Market Update and Leading Indicators

*I'll have a USO update/Oil out next...

It seems yesterday's Breadth/Internals post was right on 2 counts, we weren't at a strong overbought condition, but the most typical outcome of such a dominant P/V relationship such as yesterday's is a red close the following day, the exact opposite of Friday's P/V relationship leading to a green close Monday. I also think it was correct in the interpretation that any additional upside from this area is treading on thin ice.

The concept of a head fake move 80% of the time before a reversal in price (whether to the upside or downside) has been a very strong concept. The more popular the asset and more widely watched, the higher the probability and the asset in this case is the S&P-500. Also the more obvious the price trend like a resistance area, the more probable a head fake move is. Finally the head fake move is our best price-based timing indication of a trend reversal as they occur just before a trend reversal.

For the SPX's part... We did have a breadth flameout around 2 p.m., it's not at all obvious in volume, a bit more obvious in candlesticks and TICK and quite obvious in intraday Leading Indicators, thus the SPX head fake can't be taken off the table nor should it be, it would be one of the strongest entry positions we have.

 SPX daily chart and the March Trendline tagged numerous times making this a VERY obvious level trades would chase on a breakout, perfect for a head fake move.

Intraday the NYSE TICK shows the breadth flush at -1325 readings (extreme), although volume wasn't the normal flameout , but candlesticks are positive at the lows in intraday breadth.

Leading Indicators.

 Our SPX:RUT Ratio intraday shows a positive positioning early on leading to a flat range in both the SPT and the indicator in red.

Beyond short term day t day trade which is important for the pivot, the most important signal is the leading trend on a larger basis since the 4/2 forecast, we have been looking for LEading Indicators to give a clear signal which they are doing.

 

The same indicator on a 15 min chart from the 4/2 forecast with a positive signal going in to 4/2 at the reversal process in yellow to the left an the indicator peels away from upside confirmation as we go as we were looking for as the reversal process is traced out in the PSX. I did draw the more typical reversal head fake move in yellow , "Igloo with a Chimney" or a rounding top with a head fake above the rounding top, followed by the decline to stage 4 as I said above, head fake moves are the best price-based timing reversal signal we have.

 Intraday 1 min our Pro-Sentiment indicator goes positive at the 4/2 breadth flameout lows, indicating what I suspected last night, we aren't quite done, but we are seeing very negative trade in to any upside from here.

 HYG (HY Corp. Credit) shows the same intraday positive divegrence at the same SPX 2 pm lows.

I have inverted the SPX (green) price so you can see the normal correlation between VXX (VIX short term futures) and the SPX, you can see at the 2 p.m. SPX intraday lows, the VIX short term futures underperformed their correlation, supporting an intraday low in the market at 2 p.m.

 30 year yields intraday also went positive in to the afternoon low, remember they act like a magnet for equity prices (SPX in green), however this is only an intraday chart, not that it's signals are any less real, but the ones we are most interested in are the larger trend ones.


Since the February cycle started and led to a range in the market, you can see 30 year yields have negative;y dislocated to the downside even more than this view shows, especially recently.

5 year yields also show a positive dislocation intraday at the 2 pm SPX lows, and on a larger view which is the most important...

The 15 min chart of 5 y yields vs the SPX shows initial confirmation at the green arrow followed by the first negative dislocation taking the market lower and a new leading negative low in yields as the 4/2 forecast plays out.

 Finally HY Credit has been selling off most of the day, it seems Credit doesn't share the same neutrality the market does.

On a larger term basis...

Since the 4/2 forecast, HY credit supported the market in stage 2 mark up as it should and started going negative at stage 3/reversal process and continues to hit new leading negative lows.

Again, I don't see an immediate rush to enter positions, in fact it doesn't make so at sub par pricing and risk profiles if we suspect it's probable that we get a better entry, which I believe is probable, however just the same as last night's internals, I don't see any market improvement and continue to expect continued deterioration in to any gains in price IF WE CAN GET THE HEAD FAKE MOVE WHICH WOULD BE A FIRST AT THIS POINT AS OBVIOUS AS THIS IS AND AT AS BIG POF A TREND REVERSAL.