Market Update and Leading Indicator Update

The market and analysis is getting more and more interesting, rather I should say challenging as it's a lot more like looking for clues in shadows or footprints rather than as normal, in the day light, but that has the ability to teach you new things to add to your tool kit. 

There are two very unique trends and they fit right in with our The Week Ahead scenario, filling in this area...

The area I'm talking about is where the white row is (Chimney/head fake )

 Taking a quick look at Leading Indicators, I think the The Week Ahead post from Friday and the subsequent refinement of that theory is as close as we get to a solid theory and one that works for us as well.

There are some very interesting things going on in Leading Indicators that again suggest not only our theory is correct, but our ability to use it to our advantage is strong and timely.

Starting first with the intraday market update of the averages, they have been somewhat frustrating as they not only diverge in relative performance, but on even the intraday charts.

 The intraday SPY has the best looking chart right now suggesting it will move back to the 4212.50 catalyst area that should get something going on the upside. However as you'll see below, I believe it is running out of time and that's not only from the Greek default perspective less than 48 hours away, it's from the charts' perspective.

The IWM intraday 1 min chart we'll be generous and call it "in line" although it's not, it's also not clearly negative as it was earlier today.

And the 1 min QQQ chart is in line which is interesting because there's such a disparity between the SPY and QQQ intraday with the IWM (3C charts) in the middle.

Since the May 6th/May 7th accumulation area, you can see what the underlying trend has been ...QQQ 5 min trend, so the Week Ahead theory actually fits quite nicely as it would require underlying weakness in to price strength, that's the entire idea behind letting the trade come to you.

As for the TICK data, it's not particularly enlightening, but it does give you a good bird's eye view of the mechanics of internals on an intraday basis.

These are the TICK trends today, you'll see how they line up with the market movements intraday, quite choppy really.

And my custom TICK indicator vs the SPY since yesterday with the lows and highs we called out for intraday moves. Note the SPY/market looks to be building up here for additional upside gains.

LEADING INDICATORS...

Right now there are only 3 that I'm very interested in, short term and what comes next.

Short term this is my custom SPX:RUT Ratio in red vs the SPX in green and it is pointing toward short term support for the market, the same as TICK and the SPY chart above.

This is 30 year YIELDS (red) vs the SPX (green). Remember yields were one of our BEST leading indicators acting like a magnet pulling equity prices toward them as yields move opposite treasuries. This indicator stopped working as Treasuries were sold off en masse, but recently it has started working again as you can see above, it has led the market both lower and higher with an additional leading dislocation higher, also in line with some of the charts above for near term trade.

This is where it gets interesting. I have wondered "How long can Yields work as a Leading Indicator" and as you might remember, I'm expecting TLT to lead a counter trend rally. Whether real or imagined (it doesn't matter as everything in the market is based on perception) any downside in stocks as I'm ultimately expecting soon and upside as I'm also expecting soon in Treasuries, will likely be viewed as the "Flight to Safety " trade is active again. This is the normal relationship between stocks and bonds, stocks see flow in a risk on mode, that flow moves to the safety of treasuries in a risk off environment.

Again, whether real or imagined, a strong move up in Treasuries as I have been expecting as a counter trend move and any weakness in stocks as the Igloo/Chimney top completes, WILL GIVE THE IMPRESSION (again real or imagined) THAT THE FLIGHT TO SAFETY TRADE IS WORKING AGAIN. 

This may ultimately fail in Treasuries with a lower low as it is failing in the $USD, in fact I expect it will, but for now, what happens when Treasuries rise? Yields fall and as our Yields leading indicator that IS working now sees yields fall, which way do stocks move? Remember , as a leading indicator, Yields pull equities toward them like a magnet so a rally in Treasuries/TLT sends yields lower and stocks are pulled toward them.

THIS IS WHAT I MEAN ABOUT FINDING THE ANSWERS IN THE FOOTPRINTS...

As for TLT and the reversal process of a couple of days as I have expected, I updated the initial start yesterday after closing the TLT put position for a near 40% gain. Today, TLT , despite it being down, continues to build its positive divergence and the one I ultimately expect leads to its counter trend rally (see last night's Daily Wrap for charts)...

 TLT 1 min at a new leading positive high

TLT 2 min migration also at a new leading positive high.

TLT 3 min also leading positive.

I'll check Treasury futures as well and update them later. I don't think the long trade is quite ready yet as the reversal process is still underway, which is also interesting because it tends to seem like it all lines up with the expected short term market move and failure which would be a perfect time for the "Flight to safety" trade to begin.

Finally, earlier I showed the HYG charts and their refusal to help lift the market, however there's something worse. HYG/HY Credit is one of our best leading indicators and one of the best signs of what institutional money is doing, this is why it is one of our top leading indicators. Take a look below...

HYG in blue in near lock step with the SPX in green at the green arrows as mentioned earlier, but look at what happens to the market when HYG diverges to the downside as it did Friday the 22nd upon the market re-opening Tuesday the 26th... Now look at the current leading negative divergence in HYG and this is just a near term one, don't forget the larger ones posted earlier here, Message of the Market (toward the bottom of the post).

It seems the major trouble that HYG has been promising is getting an ignition from the shorter term charts that are done supporting the market. As I said earlier and I apologize for the language,  but smart money is getting the hell out of Dodge.

To add to all of this, the protection against a downside move and one of the assets I'd like to open a long position in is VIX short term futures and while I wouldn't say that I'd open a time sensitive option position just yet, I would say that they have built an impressive divergence and I'd sure hate to miss that trade .

We'll scalp what we can in this choppy nonsense, but as I said earlier, my greatest fear is that the market comes down without having had the chance to get in to additional short positions, although we have built quite a few.