Not to get off track right off the bat, but I see German Finance Minister (The Smeagol of EU Finance Ministers and the one guy who is as nasty as he looks) Schauble has come out and said he "Doesn't know what to do with Greece Now" and that the Greek government has broken ALL trust that had been rebuilt.
Has anyone been watching this thing unfold day by day? I think Greece should be the market's leading indicator. If you have any political ambitions, go to Greece; apparently the bar is EXTREMELY low. Honestly, without exaggerating and most of this stuff you couldn't even make up, one day the Greek government is promising to destroy the Troika, that they will not even consider talks about the bailout, the next they are signing whatever is put in front of them and even written in their names by the EU and in a worse position than when they started, then they are defiant again or throwing ideas like arming tourists with video cameras to catch Greek tax cheats, the idea being no one knows who might be a "non-profffesional "Tax spy", which the EU? shoots down as the baloney it was, then they are defiant and will default inside the EU without an exit, then they are raiding the Greek pension fund to make a Trokia/IMF payment with every nickel they can find under the couch, and the most recent that just knocked me off my rocker is the Greek government demanding war reparations from not only World War 2, but back to World War 1, a Century ago! This despite the fact that Germany made reparations decades ago to which Greece signed on and agreed and accepted payment. I can see why the latest poll out of Germany, for the first time this week has more Germans wanting the Greeks out of the Euro than in with a nearly10 percentage point jump over the previous week. I'm sure you caught the CNBC retort from the Greek Finance minister when he was asked if he is now a liability for Greece and hois well thought out, childish retort was "Are you a liability to your network?" before storming out of the interview. This is amateur hour to the point in which I suspect the government of the Bahamas would have been more credible and better functioning in Greek shoes.
Just as background and big picture perspective,
the Greek bailout was never about saving Greece, it was and is about saving French, especially German and other EU (and non-EU) banks which would sustain catostrophic losses if Greece were to default, this is why the Troika and Germany could not and would not allow anything more than a 4 month extension of the bailout the Greeks promised to walk away from. However when you can't collect taxes in your country, every industry is falling apart and no one in the world will export goods to you like say a new TV from Japan, I guess you get desperate and like people who are not doing well in trading, they jump desperately from one system to the next, never spending more than a month or so in any of them in search of what we call the "Holy Grail of investing" which doesn't exist. You can probably see the parallels and how all of this is rooted in inexperience and huge emotional swings.
I say this in all seriousness, watch the situation on the EU with Greece; this is bigger than the Lehman moment for the continent and I suspect it may very well lead to the 3rd World War on the continent and Greece will not be alone against the rest of the EU, by then either Russian or Chinese or both will have ports and boots on the ground. The EU is obviously thinking about this outcome as well as a new EU army has been proposed seeing NATO as being insufficient to guard the EU against perceived threats.
As for Leading Indicators, most are telling us the same thing we already forecast. First there's gas in the tank for the bounce this week and I believe it will run right up to the F_O_M_C meeting policy statement on Wednesday at 2 p.m. or thereabouts.
I know you've already seen these charts, but just to put things in perspective so nothing is given more or less weight than it deserves...
Index futures gas in the tank, distribution in to higher prices and Russell 2000 relative weakness...
This 15 min chart of S&P futures (E-mini) or ES, shows a clear positive divegrence, it got a late start vs the Russell, but it put in the second part of a "W" base positive late last week seen to the far right of the chart.
This is the gas in the tank for the base the SPY and QQQ have built, but until today, had yet to move out of and in to the light where they could be distributed in to higher prices.
NQ or NASDAQ 100 futures have the same 15 min chart positive divegrence, remember after the price strength last Monday that we had forecast, both of these ended the week lower as we also forecast.
Again, this is the gas in the tank, the bounce I suspect runs up until the F_O_M_C.
The 15 min TF or Russell 2000 futures chart (Same as above), looks sloppy,there's no clear divergence, it has weakened.
Starting from an earlier timeframe, but still a serious one and appropriate to look at the price action I'm talking about from last week in to this week, this is a 7 min chart of NQ/NDX futures.
The chart shows the late last week positive divergence that formed the "W" base we had been proposing mid-week for a rotation among the averages.
The very same timeframe (7 min) in Russell 2000 (TF) futures shows a very clear trend of distribution late last week, really from the moment R2K made higher prices out of its base.
Just to show there's confirmation and there's migration meaning the divergences are stronger (either have grown stronger last week or are growing stronger now and that includes both positive and negative divergences)...the 10 min charts...
ES has a positive divegrence and is pretty much in line, even though we have already seen distribution on intraday timeframes, it needs to burn through all the gas in the tank.
TF/Russell 2000 futures on the same timeframe have burnt through all of the gas in the tank and are negative. You'll see a visual representation of this beyond just price percent changes from last week to this week and leaders/laggards among the averages.
As for the bigger picture that I have tried to keep in the mix, this is the 60 min, the strongest chart so far of all above, of ES/SPX futures, it is clearly leading negative as it followed the 3C divegrence lower in to stage 4 decline and wiped out the entire head fake move's gains. You can see to the far right a very small positive divegrence which is the 15 min divergence on the charts above, but it's wrapped in a much larger negative.
This is how we understand and use multiple timeframe analysis to our advantage in forecasting and trade set-ups. For instance, with such a strong negative 60 min chart, I want to trade it, but I don't want to trade it from the long side, not that it can't be done, it's just not with probabilities. I want to use any price strength to do what smart money has done, sell/short in to it, that's with probabilities and using multiple timeframe analysis to our benefit, it requires some patience and some intestinal fortitude as the entries will be against the prevailing price trend, but hopefully the fact that you knew what to expect nearly a week in advance gives you the confidence to take the analysis seriously as it proves itself.
As for Leading Indicators... You'll see what the tone of the market is both short term and long term (as well as intermediate). You'll see why I'm looking at the highest probability trade plan the way I am. You'll see why certain positions were closed like UVXY last week as I could have closed it on at least 4 other occasions and chose not to until now and why. There's a lot of information here and a lot of confirmation,
like last week, the Cross Asset Correlation is a thing of Beauty, as if it were created by nature itself and the same applies for the charts above and below.
Our custom SPX:RUT Indicator which told us ahead of time that the market would bounce as it is moving up most of last week while the SPX in green is moving sideways.
However, below when looking at today, there's no more confirmation and this is largely pointing out the problem of relative dislocations between the averages. Rotation among industry groups is HEALTHY in a normal market, however big differences among the averages like last week and most of today, are the exact opposite and are warning signs.
Today as you can see, there's NO confirmation of the trend so there's a leading signal telling us the SPX will move higher and then a signal saying that the move is not healthy and to beware.
While not screaming, Pro sentiment was positive at the close Friday, pointing toward the continued strength in price, albeit a different set of averages, however intraday there's trepidation about following the market any higher in to risk on territory.
HYG which I suspected would be used as a lever, is actually underperforming and giving a negative signal as a leading indicator.
If you have doubts, look at HYG through other timeframes, it works just as well intraday as a leading indicator as it does on a 5 min of 6 hour chart.
The 10 min chart shows HYG SUPPORTING the market in its stage 2 mark up mode from the Feb 2nd base, then at stage 3, HYG leads to the downside, how long is it before the SPX in green follows it lower?
Also locally, note the confirmation, even though HYG is in a leading negative position vs SPX, at each of the green hash marks and then note the lack of confirmation today at the yellow hash mark.
HY Credit or a risk on asset is not willing to chase risk, that's a problem and a leading indication of things to come. There's much more to it than simply risk on or off, Credit in the Corporate sector and its movement has a lot to do with equities , especially when they are using credit (issuing debt) to buy back shares to support stock prices as insiders slip out the back door at the best prices they can get.
Look at HYG on a 6 hour chart, there was a big deterioration in 2013 or so, then in line confirming the market through 2013 and 2014 before deteriorating in to a PRIMARY Down trend. Just follow the red hash marks and you'll find lower highs and lower lows especially as the market loses upward momentum and turns more lateral in a wide, choppy range (increased volatility, lessened price gains).
The next logical move for HYG has been drawn in with a blue arrow to the right and a red hash mark, a lower low as the trend has been and already in a primary bear trend or bear market.
The SPX/market will follow credit.
This is Spot VIX over nearly 2 weeks. I have inverted the SPX prices (green) so you can see the relative performance between VIX and SPX as the two normally move directly opposite each other. There's been a slight negative dislocation late last week at the light blue's (VIX) second high which failed to reach the previous one although the SPX made what appear to be similar highs on the chart, in actuality, similar lows.
This is Spot VIX intraday, it is showing relative strength vs the inverted SPX prices. I suspect protection is being bought in VIX, but this wouldn't make sense from a hedge perspective, not for most of the averages that closed lower on the week. It does make sense from a F_O_M_C perspective and /or a leak perspective if the F_E_D is still willing to do that which I suspect they are despite this weekend's developments (which don't even include the early release by more than a day of minutes from an F_O_M_C meeting to 154 big banks and private equity firms by email more than a day ahead of schedule).
You may have seen over the weekend that a Texas Congressman has written the F_E_D and called the inquiry in to the leak of sensitive information to two sources including the Wall St. Journal (likely Hilsenrath) during 2012 ,
a "Criminal Investigation" for the first time ever . This was an investigation handled by the F_E_D's internal General Council which dropped the investigation at the behest of F_E_D members. Inquiries have been made by Congress oversight committees as to the progress of the investigation, but have not received a reply from Yellen or the F_E_D which was brought up by Democaratic Senator Elizibeth Warren during Yellen's recent semi-annual Humphrey Hawkins congressional testimony.
The latest letter was from Texas Republican,
Hensarling in which he called the investigation now a "Criminal " investigation.
This VXX /Short Term VIX Futures is another piece of the puzzle in which I decided to close the UVXY long at a +10% gain and look for a better entry as it will move opposite the market, thus pulling back for a better entry.
Note the divergence between VXX (blue) and SPX inverted prices (green). VXX underperformed suggesting near term market outperformance.
Intraday however, VXX has been in line with the SPX, thus acting a a effective leading indicator last week.
The EUR/USD has been a big mover of the market and cross asset correlation, here's FXE (Euro ETF) vs the SPX (green), you can see today the Euro is lacking in confirming the SPX as of the capture.
On a bigger picture basis of the February cycle, the Euro is leading the SPX lower, again, this confirms all multiple timeframe analysis signals we have.
As for the $USD in orange, I inverted its price vs the SPX so you can see the normal correlation. Once again, the $USD is suggesting much lower prices for the market in terms of our cycle, but in very near term (early this week) terms, it has been helpful via EUR/USD as seen earlier today in the A.M. Update.
Intraday, the $USD is failing to confirm the SPX upside, again, this is the short term tone of the market's move today which has been consistently negative, although expected.
Even yields (30 year in red) vs the SPX have failed to support the move today and are negatively displaced pulling o the market to the downside.
Intraday the 10 year yields dropped, again putting downward pressure on the market at its base when yields "should be" leading or at least moving with the market if this were a healthy move.
Commodities in brown have also been working as a leading indicator, you can see the overall trend as well as ome short term divergences and today's absolute refusal of commodities to confirm.
On a larger basis if you look at the Jan 29 to Feb 2nd base, you'll see commodities led the SPX, then at the stage 3 top commodities led again, but to the downside and now they are leading negative in a big way so bounce in the market, YES, a bounce that is more than just that? NO!
