Leading Indicators

Really just a break from tunnel vision, but a good reminder of what's really what when you start focussing too closely on intraday moves and looking for the smallest signal standing out that is like the thread that unravels the entire sweater.

Honestly, the intraday, "Threading the needle"can be exhausting. If I were just trading my own account and not worried about numerous different traders' styles and the information they need, I'd just log in my short orders, head to the beach, come back next week and be a happy guy, but on the other hand, if you're going to do something, do it right to the best of your ability.

However once in a while, that requires stepping back from the tick of each 1 minute bar and seeing what the bigger picture is showing, reminding yourself of who's who in the zoo and where we are so we know where we are going.

Leading Indicators have been very useful even on an intraday basis, for example we saw the VIX and HYG levers pulled yesterday which gave us a good idea of what to expect today, which is a major concept (the topping Igloo/Chimney). As I said yesterday in the DAILY WRAP post,

" ...as the reversal process continues and perhaps we get a head fake move which sounds scary, it feels even scarier, but would be an absolute blessing to new positions getting ready for a downside pivot. "

So I took a minute to see what the Leading Indicators were saying as they have been pretty consistent and I added in some longer term Leading Indicators which are the most important. Then we'll get back to the intraday stuff. During my moments of stepping back, I'm thinking with tomorrow being the monthly options expiration and with the market most often opening near the Thursday close, tomorrow might offer the best openings to positions that are highly leveraged such as options, but this is just a thought based on experience and really what matters most is what the charts tell us.

As for Leading Indicators...

 This is the SPX:RUT Ratio Custom Indicator which has been supportive of the bounce early on, but has turned down and the last 2 days have diverged significantly which is what I want to see in a head fake scenario.

Our custom VIX Inversion incidicator with buy signals at the white painted bars and candles gave an earlier buy signal, you may recall last week we forecast a head fake move on Tuesday at "B" which played out, but did not see the accumulation it should have so we stood by and good thing as the market remained flat from there then a second signal was given.

Remember these signals have no target attached to them other than generally the bigger they are, the stronger they are. There's no downside sell signal level, but you can see the indicator has fallen way off since giving buy signals for a bounce which we are currently in.

 This is a daily chart's longer view and you can see it has been a fairly accurate indication when there's a VIX inversion but the previous 2 buy signals didn't go far on their bounces.

 HYG/HY Corp. Credit is again, one of the first levers of market manipulation pulled for short term moves, we often know something is coming by early HYG divergences. It may be a bit early to call the death of HYG's bounce and market support, but intraday charts are getting ugly.

 This is HYG in blue vs the SPX in green, you can see the relative performance, HYG's support for the bounce, but this asset that is almost exclusively traded by smart money has not been as excited about chasing upside risk as the market which should tell you something,

The last several days/week have seen a serious fall off in the relative performance, even though we see very near term signals of support like yesterday's 3C positive divergence .

 On a longer term trend, it should be remembered that the basic saying is "HY Credit leads, stocks follow". In this case HY Corp. Credit has made a series of lower highs and lower lows and is clearly in a primary downtrend that the market should catch down to.

 Here's a better view of HYG vs the SPX. At #1 HYG is leading the market higher during the entire QE episodes, at #2 it is in line wit the SPX and at #3 it starts making lower highs and lower lows which is a primary downtrend. The SPX has some serious catching down to do and I suspect that starts with the next pivot to the downside slicing through the SPX's 200-day moving average.

 As for Pro Sentiment, this is the first positive/bounce divergence since May, but as you see, they don't seem willing to take on risk, as I called this bounce before it even started, rather than a risk on move, a risk off bounce as I expected pros to be selling in to it and that's what the chart above is telling us as well as numerous others.

 This is that downtrend since the May SPX head fake/false breakout (yellow) and the first positive divergence that has since failed.

 And our secondary/confirmation Pro Sentiment indication showing the same thing.

 Yields led the market higher as they act like a magnet for equities, but recently they have led it lower as you can see.

 The same goes for commodities.

 And the long term picture in commodities is leading much lower, but this is in large part a reflection of China''s state of affairs, commodity prices always have been.

 And HY Credit which has been mildly supportive short term which is no longer, in fact leading negative at a head fake move today.

As for the bigger picture, the same as HYG Credit with a leading position, in line and then leading negative in a primary downtrend.

These are some of the most damning charts for the stock market.

And of course for the Dow theory buffs the ratio between Industrials and the once high flying transports. That's Dow non confirmation and historically a very bad signal for the market.

Now that we have some perspective, back to the nitty gritty...