This is a bit longer than the normal update because we have missed out on 2 days of data, but either now or later I think this update is well worth checking out for the concepts, for the near term trade, for what we are expecting and for the bigger picture.
The comparison symbol for all charts is the S&P-500 in green. We'll look at some intraday charts, some charts about a week or two long, some a little longer that fit with the next expected move that we have positioned for on a speculative basis and in several instances we'll look at the big picture where the highest probabilities and largest trends are. All of these indicators have proven themselves to us in multiple timeframes as having leading qualities (make their moves before the market and thus give us clues ahead of time).
Commodities
Over the last week of consolidation in the SPX (green), you can see commodities held their ground, this even after a negative divergence in commodities at the last high in the middle of October and some dismal performance in several assets within the commodity complex that should have run huge to the upside on the QE3 announcement.
This is a 60 min chart and a bit longer than the 15 min chart above, you can see the 3 peaks in the SPX, which also fit with H&S price patterns in a number of assets, have seen commodities fail a little more at each of the highs, that doesn't mean we can't make another move to the upside, but we want to take a very serious look at shorting that strength in prices or add to current shorts.
Longer term the 2011 divergence in commodities at the top pattern was one of many negative divergences that sent the market down 20% in a short period, since the 2012 rally based on fictitious seasonal adjustments at the start of the year, commodities just never got their legs and remain severely dislocated with the SPX/market, long term this is not good as they will tend to revert to the mean.
Yields
Intraday on a 1 min chart yields have been pretty close to confirming the SPX.
On a 15 min chart Yields were negatively divergent at the first and second SPX peaks, since the trough after the second peak and before the 3rd, Yields have acted better with a more positive divergence, since the SPX came down from peak #3 in mid October, yields remained in a leading positive position suggesting a decent move up in the SPX/market.
On a longer 60 min chart, Yields were negative at the March -April downside reversal-this is where we entered a number of short positions and did very well before we identified the reversal building in to early June, the reversal has not seen Yields confirm, they are severely dislocated and again the concept of the market reverting to the mean (yields) suggests the bigger picture for the market is very negative.
$AUD/Australian Dollar
Intraday on a 1 min chart the $AUD is showing a positive divergence vs the SPX, I see we are starting to see some movement in the market that is along the lines of this market positive divergence intraday. Because the $AUD is so influential with Eastern economies as well as the famed FX carry trade, it is one of my favorite currency leading indicators.
The slightly longer 5 min $AUD shows a leading positive divergence exactly where we expected to see a flat-ish range in the market as reversals are a process and not an event, the $AUD leading positive only reinforces the bullish bias of this consolidation patter that we were looking for BEFORE it even started.
$AUD longer term 15 min- You can see the negative divergence at the second SPX top, but again, like other leading indicators, after the decline from the second peak, the trough showed some positive divergences and we see a leading positive currently at the range.
$AUD even longer term-big picture (Daily) The $AUD has been unable to make a higher high with the market since2011, this is a sign that the hedge funds have been taking off the carry trade that they use to finance purchases, in essence the big picture shows institutional money de-leveraging and closing out longs (look at AAPL) and/or getting short.
Euro/ FXE
Intraday 1 min the Euro is showing a little better relative strength than the SPX, the Euro is a better confirmation/divergence than leading indicator when compared to the $AUD, but here it shows the Euro and arbitrage in the market related to the Euro/$USD relationship is growing slightly more bullish.
On a longer timeframe-15 min- the Euro was in line with the first two peaks and as the SPX failed at the 3rd making a new low, the Euro has maintained above the important $1,29 level and remains in a leading positive divergence, this fits with our expectations for another move higher before the next really serious leg down.
On a 60 min chart you can see the Euro going negative vs the SPX at the 2012 reversal to the downside, since the June 4th low the Euro has not been able to keep pace with the SPX correlation, leaving the SPX exposed to arbitrage on the downside, again, reversion to the mean.
Credit-High Yield Corporate Credit (HYG)
Intraday on the 1 min HYG credit has held up better than the SPX, it hasn't turned red and is in an intraday positive divergence.
As it is said, "Credit leads, Equities follow" so credit is very important, especially the "High Yield" varieties and HYG specifically for its liquidity and ease of use.
15 min HYG is in line with the first SPX high, it is negative at the second and like so many other leading indicators, goes positive at the trough between peak 2 and 3 and remains in a leading positive position as the SPX breaks lower, a move that very well could be exposed as a head fake move, the reason this is important is because head fakes occur on all timeframes and are usually the last thing we see before 80+% of reversals, so it makes for a good timing indicator as well.
Junk Credit
This is high Yield because of its junk status, intraday Junk credit has held better than the SPX, a positive leading divergence.
Longer term Junk Credit looks exactly like HYG above.
High Yield Credit
Liquidity is low in this one so the signals aren't the best, but we do have an intraday positive signal today.
Longer Term HY Credit signaled the negative divergence at the early 2012 downside reversal, it is leading negative at the current area. We can still bounce from here, but this isn't a good sign for the market going forward.
Sector Rotation
There's been a surprising amount o sector rotation lately, pretty much since QE3 was announced, everything use to move wither risk on or off, it didn't matter if you chose tech or financials, they both moves the same day, now we are seeing short bursts of rotation of several days and I think it's important to have representation in some of the more important sectors such as Energy, Financials and Tech. As for the rotation since last Friday, Financials are in rotation, Industrials are as well and Discretionary is showing some life. The Defensive sectors like Utilities and Staples are in rotation based on the market today, Healthcare is not participating, Energy is off a bit, Basic Materials , a sector with a lot of momentum stocks is maintaining.
Intraday Financials have been doing well, as well as Industrials and Tech is starting to come in to rotation, Staples and Utilities (Defensive) are showing some weakness.
