Lots of interesting things happened this week, we finally exited the chop zone we had predicted which lasted nearly 2.5 trading weeks, the range was so obvious that I had called for a head fake move several days leading up to the move finally taking off and what did it take off on?
Well you may not remember but we had some really nasty actual signals and they sent ES futures (SPX) 10 points overnight, however in the morning the Wall Street Journal released an article in which the ECB for the first time mentioned "Asset Purchases" which means QE even though the European Central Bank is expressly forbidden from financing any country's debt so what do they buy? Eurobonds?
I'm not even convinced they were serious, but after a .25 point surprise rate cut that held the Euro down for several days and then let go, they tried a different angle; this time the Euro was down for a few hours before heading higher, but the equity markets loved the idea of more QE, even if it is European.
Then, interestingly after hours Wednesday Yellen's prepared comments for the Senate banking committee were leaked just before the Thursday interview; the dovish release failed to move the market much (ES)
. Yellen came off as an unapologetic Dove and while the markets moved, I don't think the move can be distinguished from a head fake move that was ready to launch anyway, even if the market was up on the probable new Leader of Liquidity (who seems more dovish than Bernie by a far sight),
the market sure didn't have the 400 or 500 Dow point response you might expect on a bigger dove taking over the printing press.
Then overnight Shinzo Abe and Kuroda's QE-Zilla from the BOJ is failing horribly as was evident as soon as it started, just read my currency crisis articles written days after QE was announced and see the trouble already immediately present.
Well it seems they figure if a lot is not doing anything, then more should...??? I guess they haven't learned anything from the 3 US QE episodes, but it did manage to send the USD/JPY over the benchmark 100 level.
Then, once again China's PBoC skipped out on the regularly scheduled Open Market operation of reverse repos on Tuesday and Thursday to inject liquidity in to the market, you may recall the last time they skipped 3 consecutive reverse repos and the market showed us many signals that it didn't like it, well they skipped out again Thursday and the Money Markets went through the roof, overnight repo rate rocketed up to 5.32% which is the biggest 2-day jump since China engaged in a huge June liquidity draining exercise that sent overnight repo rates up to 10%. Apparently smaller banks are liquidity starved and China needs loan growth for GDP growth, but apparently they are concerned with inflation(likely real estate) again and the market just doesn't seem to like it when China does this. As mentioned earlier, it may have been a shot across the bow of the F_E_D, ECB and BOJ all talking up QE this week one way or another.
Net/Net, China DRAINED liquidity from the economy this week.
So how did the week shape up and end up?
Credit was VERY interesting because this is the institutional asset used to express a risk on position, long term it's severely risk off, but short term...
High Yield Credit made an unusual and very deep move down today, we saw some yesterday in the Daily Wrap, but today was very clear, credit players (some of the smartest and best informed out there) wanted nothing to do with any market ramp.
While it may have looked like HYG was risk on, the underlying trade showed something quite different which was first noticed yesterday (after the Chinese reverse repo failed to go to market).
That is a HUGE, sharp decline in 3C this afternoon in HYG credit, this is the form used for arbitrage and whoever had been supporting it just threw in the towel for the second time in about a week.
Here's a 3 min chart, HYG doesn't look like it will be up much longer and the market won't like that, but
the reason HYG is seeing distribution is the real question.
As far as QE-Sensitive assets...
30 year treasury futures on the week saw a positive divegrence in 3C and moved up into Yellen's y\testimony, but after the 30 year saw distribution and traded more QE OFF than you'd expect.
This is the benchmark 10 year Treasury Futures and they traded QE on in to Yellen's testimony, but saw distribution after and lost gains in a QE OFF manner.
Note how the 10 year looks worse than the 30 year as I have been saying for months. Hopefully we get a pullback in TLT down to $100 or so, then I'm interested in a long position. It looks like we'll see that early next week in a QE-OFF manner.
Gold which may or may not be sensitive to QE right now was QE on into Yellen's testimony, but again, after, a 3C negative divegrence. It seems
perhaps the market expected Yellen to be more dovish than she was?
The longer term 60 min $USDX futures look like a $USD pullback which would be QE on, but it may have nothing to do with QE as it seems clear,
the trend above was QE ON IN TO YELLE'S TESTIMONY AS IF THEY EXPECTED MORE AND THEN QE OFF AFTER HER TESTIMONY AS IF THEY WERE DISAPPOINTED THAT SHE WASN'T DOVISH ENOUGH WHICH I CAN'T IMAGINE.
As for GLD and GDX which have been a thorn in my side this week for the December call positions...
It's this GDX 5 min leading positive that has me still long those calls, I think a pullback will see additional upside gains shortly. In fact...
The intraday 3 min chart went negative,
GDX pulled back, but didn't fill the gap and started showing positive divergences in to the pullback which is exactly what I want to see considering I'm leaving the positions open for now.
GLD's 30 min chart shows some real strength, it could be more, but for now, it's significant.
The intraday 3 min chart shows accumulation in to the lows and then a negative divegrence like GDX suggesting the pullback I expect on a gap fill before heading higher.
There may be some great opportunities to buy a pullback in either early next week.
Looking at the VIX and VIX futures, as mentioned earlier in the week, it seems there has been stealth VIX futures accumulation as someone seems quite worried about something.
We have large accumulation this week on a 60 min chart, it seems to be stealthy, I doubt anyone would notice it without 3C except maybe relative performance...
Like this chart VXX / UVXY refuses to make a new low as the SPX makes new highs, there's demand there and that's what we are seeing in the 3C charts.
Additionally the SPOT VIX with my custom buy/sell indicator that has worked fantastically, is showing a tight squeeze in Bollinger Bands suggesting a sharp breakout (market down) or break down (market up), considering relative strength and 3C divergences, I think VIX blasts higher taking the market down as a head fake move in the market looks like it is near complete.
For example... you saw the 3C charts for the averages today, how about the Index futures...
ES 30 min shows accumulation in to the mini cycle I identified before it made the lows, the range to the left was distribution and just needed the chimney on the igloo, a head fake move and it looks like we have that in place with a leading negative 3C divergence telling us it's a false move rather than a confirmed breakout.
We see the exact same in NQ/NASDAQ 100 futures on a strong 30 min chart. The 5 min charts have been negative several times this week, that has accrued on these 30 min charts.
Additionally...
Yields lead the market, when they were above the SPX (green arrow) the SPX moved up, now they are below, yields are like a magnet for the SPX.
XLF/Financials show the entire cycle since 10/9 lows , accumulation, distribution and head fake move.
XLK long term cycle shows something similar, but closer by...
Since the mini cycle, distribution which is why I like TECS.
Speaking of Tech, AAPL which I warned about last night....
The 5 min AAPL chart was warning...
Today the 10 min chart was screaming, AAPL looks like a great swing short.
I'll have more over the weekend, but that's it for now. Enjoy your weekend!!
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