For longer term members, you probably understand the way in which we use 3C, we are not only looking at what we think will happen next, but how long or strong and what the next trend is after that and the bigger trend that will be the most important. There are several trends in play in the market all at once, depending on your timeframe, so we try to identify what we expect from each.
The Risk Asset Layout helps us confirm current trends, see areas of potential trouble in trends and helps us confirm the expectations for different trends (whether longer term or shorter term).
Commodities which have been performing well lately, even when their FX correlation suggests they shouldn't be. I believe there may be a clue in there somewhere as to why commodities are performing better than we would normally expect. I have floated the idea this week that perhaps there's some insider knowledge with regard to an upcoming round of QE. I certainly don't think it represents a shift in attitudes about global manufacturing, QE would seem to be the only other option that would send commodities higher; that's just an early theory a we have seen some unusual trade this week, but something to keep in mind as we look at the different pieces of the puzzle.
Longer term commodity performance vs the SPX, there's actually a bit of relative out-performance in commodities.
High Yield Credit- Credit is a huge market and one in which is mostly traded by smart money, therefore it can often be an excellent leading indicator. High Yield Credit specifically has been doing very well lately, this is the credit of choice when smart money wants to express a risk on/bullish position, otherwise they'd move to investment grade credit, so the recent strength in HY indicates to me that we will see more upside in the market as credit usually leads as the markets follow.
The recent strength in HY credit.
Longer term HY credit was flat while the market rallied in the top, it was a bearish sign for the market, however recently credit is moving back up to the area in which stocks were back in April/May.
High Yield Corporate Credit is much like HY credit, thus far locally it is leading the market, which is a strong signal for continued gains, even though we should expect corrections, shakeouts, and the like, however the near term trend should still keep moving higher. When we get strong signals that the move is over, we'll look to add some shorts and determine whether we still expect to see a strong pullback followed by one more move higher or whether we expect to see the primary bear trend re-emerge-two very different trades.
On the 60 min chart the downtrend in HY Corp. Credit for now, is broken. This downtrend is part of the reason we entered core short positions in to market strength from March to the start of May. Right now I am wondering whether our short term move higher will make it to short squeeze territory and become a larger move higher or whether our original trend analysis will hold (short term higher, then a deep pullback followed by a short squeeze and finally the re-emergence of the primary bear trend).
Yields intraday also suggest the market is a bit ahead of itself, I believe it is short covering that is lifting it and thus it should pullback a bit which would be fine with me, I don't ant to see the short term move higher (which I have open long positions for) stray too far away from the assets that support it.
Yields over the last few weeks have been a real concern as they are dislocated from the SPX, however a few days ago I thought I noticed the downside move ending and now it seems we are getting a bit of a base, I'd like to see Yields move higher long enough to support the short term (I usually mean about 5 trading days or so) move.
The $AUD took a big hit on Australian unemployment this week, however it is just starting to recover and close to in line with the SPX.
Here's the hit it took on overnight news and the move toward confirmation
Long term the $AUD was an excellent leading indicator pointing out the 2012 top, now it's in line with the current move off the June lows.
Euro intraday is losing a little momentum as the SPX moves higher on what is most probably short covering, that open was probably a very emotional ordeal for new shorts in the market. This is one of the reasons I think we see an intraday pullback which is fine with me, we don't want the market venturing too far from its support.
Longer term the Euro has been hit hard making 2 year new lows recently, we'll see how much it will gain on a short squeeze that 3C seems to be forecasting.
Euro pointing out the 2012 top and the current dislocation.
As for Sectors today, Financials, Basic Materials, Industrials and to a degree, Discretionary are all doing pretty well. Tech and Energy are lagging a bit. The flight to safety trades are also moving out of rotation: Health care, Staples and Utilities.
We have some new questions to answer and some possible hints at large, market moving fundamental events that may be in play. We have to see how the market reacts, but so far and from what I've seen from the sentiment posts, we have done well navigating this choppy market.
Some of the Twitter market posts are very enlightening as far as how retail is feeling about the market, they are basically cursing it.
