Daily Wrap

It's good to be back, especially compared to yesterday's fun, although today's not a whole lot better. My eye is so swollen It's kind of difficult to focus on one object, but that will get better.

I've been looking around the market quite a bit just to catch up on any things I may have missed from yesterday. I'm not going to pretend that we aren't on that slippery right side (of a top) slope, we are, but the market has done exactly what we saw hints of Friday, had excellent confirmation of Sunday and every day since then has done what we expected, turned from a down trend to a more lateral rectangle or "U" shaped trend which is to say, creating a small base from which we can bounce. You know where we are and how volatile it can be. You know what I've said about the market putting together a move for a good reason and that there aren't many coincidences in the market.

I can go through the normal Daily Wrap looking at each piece of the puzzle, but right now I think there are only a few things that really matter, the same things we have been paying attention to for a few months and those things that have brought us this far in correctly calling the market stage we are in now.

Here are the things I think are most important at least for the near term, the most important charts we have seen plenty of, I don't think I need to make that case as the market has been making it for me.

The Yen drives everything, it's the start and the end of the carry trades and as such, tells us what smart money is doing. The USD/JPY (or other carry crosses) really move the market, but it starts with the Yen.

Last night we saw a positive divegrence in the Yen, said it would go up, taking down the USD/JPY and market with it, that's what it did, so where are we now?

 The 1 min Yen chart is going negative so we should expect Yen weakness and likely USD/JPY and market strength if only briefly, but still an important move

 Remember that range we predicted Friday afternoon, saw more evidence of Sunday night? Well here it is, the Yen downside confirmed by 3C sending the market up to the upper part of the lateral range, the positive divegrence in the middle (from last night) sending the market down to the lower end of the range and that head fake move just below that we see 80% of the time and now, the 5 min chart is seeing the Yen weakness overflow from the 1 min chart above, this should produce market strength.

 the 15 min Yen chart with last night's positive at the white arrow and a relative negative at the red arrow, longer term weakness that we see above on the 1 and 5 min charts.

 And the 60 min chart, even though the Yen has been strong throughout 2014, causing market weakness, we have a clear relative negative divergence now, this would suggest a counter-trend 92014) bounce in the market, exactly what Friday's prediction of a lateral range was most likely to produce.

The $USDX is the other half of the USD/JPY pair and it's strength usually wouldn't be a market positive except in a carry cross environment.

 After a choppy sideway trend, we are getting a clear 5 min positive divegrence, confirming the Yen's 5 min negative.

The $USDX 30 min has the biggest positive divegrence of 2014, therefore, likely to produce the biggest bounce of 2014.

After the Yen's positive last night, the USD/JPY fell apart overnight taking Index futures with it (as Emerging Markets fall apart telling us something about the primary trend beyond a bounce). The trend today in the carry cross was lateral so last night's weakness has stabilized and the Yen's charts show us why.

As mentioned last night, the 1 min 3C chart is about all we get for FX pair divergences and we have a clearly positive one through the market's regular hours today as the lateral trend held all day. Think about the market's lateral trend as well since we predicted it Friday, they should produce the same thing, a move higher.

This is the 2014 USD/JPY 60 min chart/trend with a series of lower highs and lower lows, however we tested today and did not make a lower low, meaning the orange area I drew in Sunday night for a USD/JPY (and market) bounce is looking more probable.

 ES/SPX futures 5 min chart with that wide/choppy lateral trend, we were at the top of it and needed to come down toward the bottom and maybe even make a head fake move (stop run) just below this week's lows, the lateral trend is in yellow and the slight stop move was effected today as the FX charts all told us last night we'd be heading down toward the bottom of the range.

 The TF/Russell 2000 futures 5 min chart shows the same range, a positive off the lows Monday and a negative off yesterday's highs last night bringing us to the bottom of the sideways trend we expected, even a small head fake move was effected today.

TF 60 mins shows the negative divegrence that sent the market lower and we see the positive divegrence that halted that move lower and created our sloppy, volatile, lateral chop or range (a small base really, but probably the largest of 2014).

ES 60 min with the negative that took us lower and a leading positive at the predicted range, the range was also predicted to likely see accumulation, thus making it a small base, but still probably the largest of 2014.

It's hard to see a 60 min positive divegrence, rather a pair of them in Index futures right at a lateral range we expected and say, "This won't produce a bounce", it has all the hallmarks of a bounce, not a true change in trend or bearish character, but a bounce and as I said, the market doesn't put these together unless it has a reason and those reasons generally require that the move be believable.

The Nikkei 225 futures , similar to the Dow in size and points, we have a 5 min negative which is the same move off the highs that we saw in the Yen last night bringing us "close" to the bottom of the range (yellow box).

The NKD 15 min 3C chart and the same range as the Index futures/market, a positive forming the lower support of the range and a negative from last night forming the upper boundary of the range. All in all, even though we have a negative divegrence at resistance of the range, the overall picture of 3C here is a leading positive position again suggesting a bounce higher and above the range.

Ironically the NKD 60 min chart has the same negative sending the market lower and a leading positive in the area of this week's  range. As I said above, "It's hard to see a 60 min positive and a range and not expect a bounce."

As mentioned last night, gold (YG gold futures) moves opposite the market so the 5 min chart's negative divegrence suggests a move lower in gold (thus the gold put call), by correlation this is just more confirmation of a market bounce.


All of these charts confirm each other and confirm our expectations for this week starting Friday afternoon.

As for other charts (even though I think this makes as strong of a case as we can make)...

 Last week I mentioned Spot VIX's Bollinger Band Squeeze (not as developed as the previous one). Following the candlesticks we have a confirmed bearish (for VIX) reversal pattern, a confirmed Harami (in red). Yesterday's confirmation of the candlestick pattern allowed the market to move to the top of the range, today's candlestick (red arrow) isn't what you'd expect after a confirmed top in the VIX, but it did allow for the market to make the run to the bottom of our range (red arrow). All in all, the definitive chart feature is still the VIX candlestick top, remember the VIX trades opposite the market for the most part.

Here's the NDX, recall I said we'd likely see a "U" shaped bottom? The candles of the last 3 days form that "U" shape".

a 60 min chart focussing on the last 3-days allows us to see the "U" shaped pattern better (typically a reversal process as downward momentum gives way to lateral indecision and then a trend reversal).

The big picture shows the SPX stopped out at my award winning Trend Channel, the first stop in the trend. However as I have posted numerous times, after the initial stop you are usually better off just exiting the market (long positions), but there is typically choppy volatility and you may see a move higher, in fact you usually do, but it's not a move typically worth chasing (on this timeframe) as it's very volatile, choppy and rarely is anything more than open market risk or opportunity cost. However we are looking at trading a shorter trend than a 5-day chart.

 This stop out tells us something about the major trend, (bearish) and the above character of a stop also tells us something about the short term trend (the one I've been preparing short term trading positions for).

As for Leading Indicators on a near term basis, tonight we have a Dominant Price/Volume Relationship, in most averages it is (by average components), Price Down and Volume Up which is a short term "oversold" condition and we usually close higher the next day.

 While not a huge signal, our sentiment indicator (blue) vs. the SPX (green) is slightly bullish, not nearly enough to change the primary underlying trend, but enough to cause a short term corrective bounce.

Here you can see the SPX trend of the last 3-days (this week) predicted (yellow), also High Yield Credit is not leading lower so the near term signal in credit is at least neutral and considering the environment, that is slightly bullish, along the lines of the bounce move I'm looking for.

The model for Context's ES model has recently swung bullish.

CONTEXT ES model vs ES, is now bullish.

We have plenty of charts showing the market is clearly done...(these aren't even the worst..)

 DIA 2 hour clear distribution on an epic scale.

IWM 2 hour, also major distribution, the recent top was the worst.

QQQ 4 hour

 SPY 60 min

However, between now and then, we have plenty of short term bounce signals, not at all on the same scale, but enough.

 DIA 5 min

IWM 5 min leading positive, note the range in yellow

QQQ 30 min leading positive

And SPY positive.

For me, it's just a matter of continuing to monitor the market and add trading positions for now and shortly primary trend positions.