Full Update

I'm going to do my best to make this understandable. First let me say that Friday's analysis which was that the market would either show relative strength in not falling as it is very weak (meaning getting some kind of short term support, I was defining short term as early this week) or it would actually get a little bounce (and I do mean little as we have not seen a single divegrence in the averages beyond 3 mins, most not beyond 2 mins ).

Then in addition to the short timeframe divergences, I also noticed something rather new or unique that is not seen often and that was in this post from last night about "Accrual Rather than Migration" which was showing there are multiple negative and positive steering divergences, I suppose to keep the market from an all out decline near term, but at the same time there has been more distribution than accumulation for early this week, you can see that post here which is an interesting new dynamic in the market.

The last part of the analysis was that the VIX futures which already have a huge positive divegrence (think about them in these terms, in early February we had 30 min positives that led to the Feb. rally, now we have the opposite, 30-60 min positives in VIX futures which should lead to the opposite, a strong decline), however on short term charts early this week what I was looking for was the VXX to pullback and then go positive giving us the actual pivot signal that turns the market from this obvious stage 3 top as it has barely moved in weeks vs the prior trend of a strong move in days. To get that signal the VIX futures need to pullback so they may accumulate which means the market needs a small bounce at least and we had/have the signals for that.

Also on Friday and increasingly so since then HYG was part of our analysis, it has been used as a lever of market manipulation for a long time and even though it saw significant distribution and broke from the market correlation in heading down, Friday we could see they were propping up the market with HYG support or manipulation because there's no real accumulation, it's a trick used on algos to make them think smart money is in risk on mode, we can see through the averages they obviously aren't, but that is how High Yield Credit works as a lever of manipulation.

Obviously some things have happened and the market is not static so we have been following along, moving a few positions such as profits in IWM and BIDU puts and some smaller call positions to act as hedges to protect put positions that have a gain via some small QQQ/IWM calls yesterday to act as a hedge or an off setting asset.

While many things have changed, China's default and credit lock up most notable and perhaps most serious (I called it potentially China's "Bear Stearns moment" of 2008) we've also had some other things with the Ukraine pressuring the market.

THE POINT IS, I BELIEVE THE BASIC PREMISE PUT FORTH FRIDAY AFTERNOON STILL HOLDS, THE VIX FUTURES ARE STILL THE TRIGGER, THE MARKET SHOULD STILL SEE A SHORT TERM BOUNCE OR MAYBE JUST TREAD WATER AND HYG IS THE ASSET BEING USED AS THERE'S SIMPLY NO ACCUMULATION OF ANY NOTE IN THE AVERAGES, IN FACT AS SHOWN LAST NIGHT MORE DISTRIBUTION AND TODAY'S OPEN WAS EVIDENCE OF THAT.

What matters is where we go from here. I said earlier today that I would not be against adding to yesterday's QQQ and IWM long (calls) hedge, I think leveraged long ETFs can work as well, these positions though are hedges to protect gains in puts and shorts, they are not meant to express even a very short term net long stance, my stance is still 80+% short even if I were to add to the QQQ/IWM long hedge which I may given the right opportunity or if it's not practical than I'm fine just sitting through the break to the upside we need to get the VIX futures in position, I don't think it will be that serious or even significant so if I can get the additional hedges in place that's great for a very short term and very speculative trading position, if I can't then I'm just patient in waiting for the market to finish this and that's where I want to add to PCLN, NFLX, BIDU, AAPL, GOOG, GS and numerous other short positions.

Lets see if I can make some visual sense of this for you... You know that the AUD/JPY carry trade got slammed last night, apparently on some commodity unwinds as copper is getting killed and iron ore and going limit down nearly every day now as corporations that put the commodities up in China as collateral for cash from the banks are getting cash calls and they are unwinding the collateral to meet the cash calls, thus the dive in metals like copper and iron ore. Whenever the $AUD is involved, unless the RBA (Australian Central Bank) made a move, it's likely reflecting something in China and yesterday and overnight that was intense fear as China is no longer a growth engine, but a ticking time...

Lets look at the charts, note that some have nearly no divergence, none have anything even at the 5 min range so there's weakness that HYG is making up for or will.

There are a lot of charts, but if you can see the correlations, the big picture and short term picture should emerge and give you confidence in our strategy.

The averages...SPY

 This has been by far one of the weakest averages since Friday, the 1 min intraday chart as of this capture shows some downside which may be helpful in entering the hedges whether calls in IWM and/or QQQ or whether you choose a long average ETF, maybe a leveraged one like QLD, TQQQ or UWM, URTY.

 The 2 min chart shows the divergences and weakness that is accruing that is in the post linked above from last night, but we also have another positive divegrence today, take a closer look at this 2 min chart on an intraday basis below...

 Here's today's positive in to price weakness, I suspect a head fake move and that the real move is coming VERY soon, thus I took gains in some select puts that I intend to re-enter upon the conclusion of the market move that is expected. This would be the same reason for adding the long position hedges.

 SPY 3 min weakness is quite strong, but today we have a strong 3 min positive, just short lived so it's not going to lead to another February rally, not even close.

At SPY 5 min, just like all the other averages, there's no positive at all, this is unusual for a cycle that is 3, almost 4 days old, the 5 min should have been positive, this is the weakness in the market on a slightly longer or bigger picture view, this is why HYG is needed.

IWM

 1 min showing a positive at today's lows...

The 2 min shows the several divergences in several days and that accrual concept from last night, we have a relative positive right now.

Taking a closer look at the same chart...

These are positives, but nothing even close to impressive strength, perhaps just enough to get the job done, perhaps they get run over, but I doubt it because of the backstop in HYG.

3 min intraday pulling back, I'd like to use a pullback in price to enter the hedge positions, that's about all it's good for to me right now.

The 5 min chart once again no positive whatsoever.

QQQ

 1 min, this is by far the best looking of the charts, this morning's lows were accumulated ON WHAT WAS AN OBVIOUS STOP RUN AS THE SPY TOOK OUT 6-DAYS OF LONGS / STOPS.

This tells me we must be close, thus I took action to protect significant profits and set up hedges on the rest.

1 min intraday is showing the pullback I hope to be able to use.

2 min is also positive and could be enough to get the move off.

The same chart intraday shows the lows accumulated as stops were hit.

The 3 min chart has some positives, by now you can see it looks far better than SPY or IWM, but still very small accumulation as evidenced by only a 3 min chart.

The 5 min chart, like the others, distribution, no sign of a positive, THE FEB RALLY WAS SIGNIFICANTLY POSITIVE TO 30 MINS, WE DON'T EVEN HAVE 5 MINS, THIS IS WHY I SAY IT'S NOT EVEN CLOSE TO BEING ON THE LEVEL OR A CONCERN FOR ME IN ANY WAY.

HYG, HIGH YIELD CREDIT, SMART MONEY TRADES IT, ALGOS FOLLOW IT AS A SIGN OF RISK SENTIMENT, BUT IT'S A LEVER OF MANIPULATION, IF THER WERE THIS KIND OF INTEREST BY SMART MONEY WE'D HAVE POSITIVE 5 MIN CHARTS IN THE AVERAGES.

HYG 10 min positive is about as far as it goes, but significantly more positive than the averages, I think it's cheaper to buy 1 asset than all of the averages to try to move them. Smart money knows the score, they don't want to be caught with a medium size long in the averages when the music stops playing.

 Here's a closer look at HYG 10 min, you see the range since last Friday and the accumulation, it is being used as a lever of manipulation, but the move in the market doesn't start until HYG starts as the algos buy the averages seeing HYG moving.

The VIX futures are really what's important though, long term they have plenty of accumulation, I showed this last night as well as relative performance (price) vs the market, much stronger and this is similar to the strong positive before the Feb. rally just in reverse, a strong market negative, but we still need pin point timing and for that we need the shorter term charts.

 VXX 15 min just to show the confirmation and strength in the protection of VIX futures which is a flight to safety move undertaken in huge size, this is not retail.

VXX 5 min leading positive, remember we don't have any positives on the 5 min chart in the averages.

What I'm actually looking for in VXX are these flying, near vertical positive 3C divergences and to get them VXX NEEDS to pullback to be accumulated, smart money doesn't buy in to higher prices, only lower ones, that means the market needs to move up for VXX to pullback so we can get these signals that are the actual timing indication we need to see for the overall market.

THIS IS MORE ABOUT THE VIX FUTURES THAN ANYTHING, IT'S JUST WE NEED THESE OTHER ASSETS TO MOVE TO GET THERE.

 2 min VXX seeing short term distribution on the gap up this morning as the market gapped down, confirmation as the averages accumulated so more confirmation.

I believe the VXX will have to move at least to the yellow trendline or below to have a large enough reversal process to allow for the flying 3C signals.

Intraday 1 min shows the same distribution of highs but only in the short term 1-3 min charts, the exact opposite of the averages.

As for the actual VIX futures...

 1 min positive, which is like a 1 min negative for the market, this is good for adding the hedges at a lower price.

5 min negative, this is more along the lines of, "I think we are now close to the market move we need, the pullback in VIX we need and the accumulation on the pullback in VIX we need, that's the key, it has been since last week.

Remember, all last week I was patient and never brought VXX out as a position because I'm waiting for the final move at the best price with the least risk that also is calling a turn in the market.

 The 15, 30 and 60 min VIX futures all look like this, just like the long term 30-60 min VXX and UVXY so the accumulation is there, it's just waiting for the move.

Carry trades... first compare the USD/JPY to ES(SPX futures in purple)

 You can see where ES was weaker than the correlation that normally holds, the reason is the Index futures are more concerned about China and as such are following the AUD/JPY carry trade for once...

See how ES follows the AUD/JPY a lot closer?

The AUD/JPY fell last night and overnight , but I showed accumulation in to that fall, the move up in the pair is the same as the Index futures as you see they follow tick for tick.

So we need the $AUD to go positive and move up and the Yen to go negative and move down.

Here's the 5 min $AUD, that's pretty darn positive in to the crash overnight over China.

Here's the Yen losing its steam with a negative, THIS IS EXACTLY WHAT WE NEED FOR THE MARKET TO MOVE TO GET VIX TO DO ITS THING AND GIVE US A TIMING SIGNAL AND A BUNCH OF POSITION ENTRIES.

The $USD doesn't have the positive it needs for the USD/JPY to lead, but it doesn't matter because ES is following the AUD/JPY and that is where we have the divergences we need.

I hope this makes some sense, you should be able to read it tonight and it will be just as relevant except maybe some of the short term intraday hedge entries.

This is little changed since Friday's thoughts on what was coming this week, in fact unchanged except to deal with what has happened in the market.