Divergences

I’m seeing some divergences as we are approaching some daily resistance on the S&P 500. Admittedly this is a very soft edge but let’s explore it as our risk is pretty limited here. First let’s look at what caught my attention this afternoon:

The VIX:VXO ratio basically contrasts the price of the 1-month option chain vs. the strikes near ATM. Divergences in pricing usually are subtle hints that market makers are preparing for a quick shake out. May be nothing but that was a rather steep drop this afternoon. And then there’s this:

Here’s the GBP/JPY, a popular carry trade pair, vs. the spoos. As you can see they usually pretty much move in tandem, or at least have been in recent weeks. Today however we’ve got them dropping – obviously Carney’s announcement to overhaul how his central bank is run threw some jitters into the GBP pairs. Again, could be ignored but let’s look at the spoos now:

As we are pushing higher we are approaching the NLBL at 1869. I would love to see a close right below which would put me in a speculative short position (1/2R). My stop would be very nearby at 1870, perhaps a few ticks higher for good measure. If we close above the NLBL today or tomorrow however then we have a long signal.

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