We are seeing the first day with credit trading higher since the recent implosion in credit. Credit has been an “extra” important indicator for equities, both up and down, ever since the October sell off started.

Below chart shows the SPX versus US and European credit (inverted). They have clearly continued moving in tandem.

On December 21st we wrote a note, “High yield credit capitulation”, on the extreme spike in credit that had developed during the autumn. We wrote:

One interesting observation when it comes to extreme moves is what we saw in US High Yield ETF (HYG US) yesterday. Horrible price action with huge volume, but not only that. It was a day with highest total PUT volumes (green) for the HYG US ever. Is this one of the early capitulations we are getting?

The record put volume in the HYG US was seen right at the lows. Since then the HYG US ETF has bounced some 6.5% in a violent spike higher. The HYG US has reached big resistance levels and the 200-day average is pretty much here.

It seems people love to chase puts on lows instead on highs.

Source: charts by Bloomberg