Weekly Activity Context
This chart was sent on Sunday, and the entire analysis presented here must be interpreted within this framework.
Most importantly, equities are operating with activity levels below their historical average, where anemic volume conditions are enabling outsized returns.
The Market’s Underbelly
We are witnessing a market where the major equity indices are pushing toward new all-time highs.
They are achieving this in an environment where:
- The labor market continues to weaken
- Inflation remains outside the Federal Reserve’s target
- The Fed itself is effectively constrained—as clearly reflected in the interest rate futures market.
- An active war that has driven oil prices to $118 per barrel
Keep in mind that, all of this has taken place in equity markets operating with activity levels significantly below their own historical average.
Correlations with the Interest Rate Structure
Block Analysis: HYG vs LQD (Credit Stress)
High Yield Corporate Bonds
Negative Z-scores across the curve, worsening on the long end. The market is pricing higher default risk, as and if, rising rates tighten refinancing conditions.
Investment Grade Corporate Bonds
While high yield bonds weakens, investment grade binds remains resilient—acting as a defensive allocation. Higher rates are driving a risk-off environment, making investment-grade credit a preferred safe haven despite its duration risk.
Concentration vs. Solvency (The Index Illusion)
- S&P 500 ETF Trust and Invesco QQQ Trust are market-cap weighted.
- A handful of names—NVIDIA, Microsoft, Apple—drive most of the performance.
The index no longer reflects the market. It reflects concentrated liquidity acting in fact, as a safe heaven destination.
Interpretations
- This is not optimism—it’s defensive positioning.
- Capital flows to iShares iBoxx $ Investment Grade Corporate Bond ETF the same way it flows towards High grade Corporate Credit.
- Implication:Indices can make new highs while the real economy is already in recession.
- Liquidity is now selective, not broad-based—it is flowing only into high-quality equities and investment-grade credit.
All of this is taking place in a low-volume environment, amplifying the distortion.
The real economy sectors
While the media remains fixated on the prospect of new all-time highs, this is what’s unfolding beneath the surface.
Activity (first column) and volume (third column) are running two standard deviations above the mean of the spread versus SPDR S&P 500 ETF Trust.
In other words, they show extreme relative activity and volume, yet underperform in returns versus the index.
This reflects a broad rotation out of the sectors that represent the real economy.
Indices are acting as the last line of defense.
Profit-taking and rising interest rates are the key risks for this new “safe haven.”
If the safe-haven flow into the mega caps fades or profit-taking begins, there will be no support underneath—the rest of the market has already been drained. The market’s underlying health is effectively non-existent. Liquidity has become selective, even among mayor players as you can se bellow.
This is a distribution phase at highs
We are still operating our hypothesis of an emerging credit crisis.Equities are one way we are expressing this view—but not the only one.
Financial institutions showing the weakest relative strength within their sector.
Time frame perspectives
On the weekly timeframe, the charts display the same structural pattern. However, at first glance, different levels of relative strength can be observed.
Drilling down from the weekly into a daily perspective, there are already clear signs that the rally is starting to lose buying pressure.
Trading
A conditional trade upon confirmation from HYG breaking 80. Our invalidation zones remains the same.
Trust Financial Corporation
Trade Box: Open Short 48.77 | Stop 51.12 | Target 43.31 | P/L 2.32 a daily close confirmation and only afterwards HYG confirms.
Research Desk-Mid week report
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