It was an interesting day in FX, with the yen strengthening by more than 1% against the dollar and the Swiss franc gaining 80 bps. Recently, we’ve grown accustomed to seeing stocks and bonds sell off amid dollar weakness, but today was different—stocks were essentially flat, and yields moved lower.

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There’s also been a minor divergence between the S&P 500 and CDX HY credit spreads. In fact, over the past two days, credit spreads have widened slightly, while the S&P 500 has managed to rally (inverted).

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The VIX was higher today, rising to 25.2, not a big move, but overall, I would think that we will continue tosee implied volatility rise this week. Meanwhile, the VIX 1Day actually finished the day lower, and I would think that as the week goes on the VIX 1Day will continue to rise, most likely right into the Thursday close ahead of the Job report on Friday morning.

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Equity financing costs continued to decline today, with the second-month futures contract dropping by 3 points to close at 49.5 bps, its lowest level since October.

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I would say that a stronger yen, wider credit spreads, and lower equity financing costs are not bullish signals.

We have a situation where stocks have gone their own way somewhat. It doesn’t necessarily mean stocks are wrong, but it also doesn’t mean they’re right. I seriously doubt they can continue diverging from credit spreads, equity financing costs, and the yen for long, especially knowing that IV is likely to rise. It’s possible that today’s action was just part of a broader process of the stock market starting to reverse course. In fact, the index stopped rising today precisely at the 78% intraday retracement level.

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If you wanted to get a bit creative, you could actually argue that the index formed a rising flag pattern, which suggests the S&P 500 could return to the origin of the recent rally at around 5100.

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You could also argue that the pattern is a cup with an upward-sloping handle, which similarly suggests the S&P 500 may revisit the 5,100 level.

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