The Week Ahead...

First lets look at what's just behind us, specifically Q1 Window Dressing...

According to the WSJ as tracked by Goldman Sachs, Hedge Funds which have miraculously UNDERPERFORMED the last 5 years (that 2% management fee -sometimes 3.5% and 20% incentive fee- sometimes as high as 50%, really is a slap in the face considering anyone of these "qualified Investors" could have simply bought the SPY and outperformed the smartest guys in the room) saw one of the WORST weeks since 2001 (vs the SPX) the last week of March, also Q1 Window Dressing.

I have the watchlists setup of the hedge funds' 50 largest holdings as I'd think we can continue to expect the massive unwind as something strange is going on in the market. It's not just what we see, but this sudden and very public HFT witch hunt led by none other than Goldman Sachs, uh... sorry, meant the FBI ;) In addition Goldman is selling their "Designated Market Maker" unit on the NYSE, this is essentially what we have known for years as "Specialists" on the NYSE, essentially the same thing as a NASDAQ Market Maker...more from Reuters. 

So... Goldman is to have no presence on the floor of the NYSE? They're leading the witch-hunt (a long overdue one at that) against HFT, does anyone smell a rat? The initial opinion was that High Frequency Trading was/is being set up to take the fall for a market crash, it's interesting that the SEC is almost invisible on this one and the FBI is leading the charge with Goldman giving them the information they need to understand that which the SEC never bothered to learn incredibly, or just was more convenient not to learn. What's ironic is that Goldman had its own HFT unit and they are the lead underwriter on the VIRTU which boasted 1254 days of profitability and only 1 day of losses... Maybe not so ironically the IPO has been put on hold by VIRTU. WHAT? GOLDMAN DOESN'T HAVE THEIR CLIENT'S BEST INTEREST AT THE FOREFRONT? SARC.

To me it sounds like the NYSE is going to look a lot different very soon (the NASDAQ is a computer network whereas the NYSE is the open-cry market you are so use to seeing on T.V. with some celeb or other hack wringing the opening/closing bell).

As far as what the week ahead should look like, lets start small with Friday's post, Looking Forward to Next Week this is because no matter what price does, the last two hours of 3C trade almost always pick up right where they left off the next trading day (Monday). From Friday's post (linked above)...


"the 3C signals pick up where they left off so if we have positive divergences this afternoon, the chances are VERY high that we'll have positive price activity early in the week (next)....There are positive divergences in all of the major averages (Dow, SPX, Russell 2000 and NASDAQ 100), my favorite is the IWM, my least favorite is the SPY which hasn't been able to put in a 5 min positive, whereas most everything else has and the IWM has gone further.

I'm not sold on an immediate move Monday morning, the reversal process in the averages to me looks incomplete, a pop higher immediately would look a little premature so I wouldn't be surprised if there was a little more lateral/sideways work done in the major averages, but that's an opinion, the most important thing for near term trade is there are positive divergences.

Also remember that no matter how far they may have reached, like the IWM out to 10 mins intraday today, it's still only 1 day of positive signals meaning it's a small base/foot print and the best analogy I have is if you put 1 gallon of gas in your car, don't expect to be driving across the state."
You may recall Friday we had several "QUICK-TRADE" long positions: IWM Calls, AAPL, AMZN, NFLX, etc (all long, all speculative short term trade ideas).

As far as the market itself and what it looked like as well as the multiple timeframe analysis of the larger February Cycle and the smaller March 27th cycle (to present) , they have aligned, which is interesting as it works out very well with out VIX thesis as the VIX Futures "accumulation" being the market downside pivot timing indication...

 SPY Daily chart with the February cycle in late stage 3, stage 4 is decline, the IWM/Russell 2000 has already hit stage 4 and the first move typically seen, a volatility shakeout of early shorts.

You can also see the stage 3-4 for the March 27th (smaller) cycle and what looks to be a shallow head fake move above the February stage 3 top as this is a common occurrence just before a trend reversal and happens in any asset and any timeframe (although they are proportional to the ttimeframe).

 This is the SPY 60 min chart showing the smaller March 27th cycle moving from stage 1 base, stage 2 Mark-Up, Stage 3 distribution/top and now stage 4 decline, but I suspect a small bounce as you saw posted on the signals we received late Friday.

I also didn't think we'd see an immediate bounce first thing Monday morning, but likely a more proportional reversal process forming something like a "W" base, a small stage 1 micro trend with a head fake below Friday's lows and then up. 

I'm not going to post the 3C signals right now, but they are what led me to this line of thought for the new week. Interestingly there are some other indications that would tend to support that theory. Take for example High Yield Corporate Credit, HYG, the algo-buy inducing market manipulation lever.

HYG among our Leading Indicators... (All leading indicators are compared to SPY/SPX in green unless otherwise noted).

 HYG vs SPY with a negative dislocation sending the market lower, then a positive dislocation on Friday, AFTER the op-ex pin would have been lifted around 2 p.m.

Here's a closer look...

 This is HYG vs SPY intraday, note the in line status until 2 p.m. when HYG starts leading the SPX/SPY.

It wasn't just HYG though, High Yield Credit looked almost exactly alike.

We have a negative dislocation leading the market lower on this 1 min chart of HY Credit vs the SPY, then right around 2 p.m. a positive dislocation that would lead the SPY/SPX higher, but remember these are very small divergences, thus the SPECULATIVE long positions late last week.

I suspect a little larger reversal process and for the SPY to likely move below Friday afternoon lows before setting up a quick, speculative bounce.

Yields, one of my favorite leading indicators also show something similar...

 Yields going negative at what would be a small head fake move above the stage 3 February cycle with a leading negative divegrence as well.Yields tend to pull the market toward them like a magnet.

However Friday (1 min) intraday we see a negative dislocation sending the SPY lower, in line status at the green arrow until ...YOU GUESSED It... 2 p.m., then a positive dislocation starts, note I said "starts", allowing some room for it to grow, especially if the market does what I expect and builds a slightly larger stage 1 micro base.

As for opening Indications in Index futures Sunday night, they are in line with our theory, as well as some speculative trading positions.

 ES's 4 p.m. print on Friday was 1860, as of about midnight ES was not far at 1858.50.

However, as I have said, this would be a small, short duration, speculative bounce. Take a look at the bigger picture on the longer 3C/ES charts.


The 15 min is leading deeply negative as price makes what would be a fairly small head fake above the stage 3 February cycle top/range, you see what happened to price right after that strong distribution signal. However it also has a small relative positive going in to Friday afternoon, like the averages.

The 30 min ES 3C chart showing the entire March 27th (smaller) cycle from accumulation to distribution, the cycles (large and small) both aligned at stage 3 (top) right at the area of what we would consider a head fake and then retreated, but as I mentioned numerous times Friday, the "head fake " move was a very shallow and not very convincing one, although I think this is more about pushing VIX futures down in to the accumulation zone which is already well underway.


VIX Futures

 The 30 min 3C VIX Futures chart looks exactly the way we want it to and the way we have been waiting over 3 weeks for it to, accumulation as soon as the relative strength in VIX gave out on the first move lower (the first day which is uncommon to start accumulating that quickly).

We have the base for excellent VXX divergences as well, which is what I'm really keeping an eye on as they fly when they are ready to reverse (taking the market down).

SPOT VIX

Spot VIX is under the support zone which is what we needed to happen, also in a flat BB area with some interesting candles since the break of support.

Friday had no Dominant Price/Volume Relationship, but I did look at market breadth indicators and saw some interesting things considering where we are in the stages (end of stage 3, moving to stage 4 decline which the IWM already hit and started its volatility shakeout.

Breadth doesn't lie

 Here we have the SPX in red vs the breadth indicator in green on a daily chart. This is Percentage of NYSE stocks Trading Above Their 40-day Moving Average. Note the February cycle shows the indicator in line with stage 1, 2 and then at the later area of stage 3 it goes divergent (negative).

We know momentum stocks were slammed, this is Percentage of NYSE stocks Trading One Standard Deviation Above Their 40-day Moving Average , also note the in line status or confirmation at the February cycle early on in stage 1 and 2, but at the second half of stage 3 (Top) we have an even deeper negative divegrence in the breadth indicator.

 This is the real Momentum stocks with Percentage of NYSE stocks Trading Two Standard Deviations Above Their 40-day Moving Average, we have an even deeper negative divegrence as fewer and fewer stocks are able to hold 2 SD's above their 40-day m.a.

Even looking at the momentum stocks using  Percentage of NYSE stocks Trading Two Standard Deviations Above Their 200-day Moving Average, we see the same story, this looks like the hedge fund herd has been clearing out, especially during window dressing (Q1) for some reason.

Remember, the indications I'm talking about for this week are very WEAK, they are speculative longs, however if there is to be a head fake move of more substance, I suppose they could pull if off, I just don't know if there will be or not as I believe this is less about a bull trap and more about accumulating VIX protection.

To give you some perspective, this is the long term view of the averages using my custom, "DeMark inspired" Buy/Sell indicator, JUST TO KEEP THINGS IN PERSPECTIVE...

 This is a QUARTERLY chart, note that we don't even see the buy signal at the lows of 2009 like we usually do on shorter timeframes, meaning these are much stronger signals,. There's a clear 2000 sell, 2007 sell and a larger sell signal right now, THIS IS IN LINE WITH LONGER TERM 3C CHARTS, for instance you probably recall the comparative 3C chart of the Dow 1929 vs Now? Now being MUCH worse than Dow 1929.

 The NASDAQ Composite doesn't have enough data to go back to 2000, but what we have shows the ONLY sell signal on a quarterly chart right now, meaning a stronger signal than 2007.

 The DOW shows a late 2006-2007n sell signal and a nice one right now.

And the Russell 2000 also doesn't have enough data on a quarterly chart to go back beyond 2005, but we have the 2007 and a large one now as well.

These signals aren't a scalpel, they're a sledge hammer, but they should give some perspective on expectations for a downside Primary market trend, the Dow 3C chart also gives the same type of signal, essentially the worst ever seen since the Dow's inception.

That's going to do it for now, we might be able to enter some quick leveraged positions if we get a head fake move below Friday's lows and have decent short term accumulation, I prefer the leverage of options (maybe even weeklies) as I see these as VERY short duration , very speculative trades. However, they should set up some nice shorts that come to us on our terms and that's the watchlist I have ready for the new week.

As far as data, here's what's on the docket, the main event... F_E_D minutes...

Wednesday 2 p.m. the Minutes come out, that's almost perfect timing considering the short duration signals we have, with a typical F_E_D knee jerk move, Wednesday / Thursday may be ideal days to set up larger core positions or fill them out.

It's amazing how many of the top 50-hedge fund holdings that are being liquidated have been on our core short list as we have been tracking the same distribution that caused the hedge funds to see some of the worst weekly performance the last week of March since 2001!!


Bonus Charts, just to put stage 3 in to perspective...

 1 min IWM accumulation Friday afternoon

2 min QQQ accumulation Friday afternoon

3 min SPY accumulation Friday afternoon

3 min DIA (there's no 5 min accumulation here, meaning small accumulation) accumulation Friday, thus our speculative long "bounce" positions...

As far as the SPY February (larger) cycle and the stage 3 top, here's a 15 min chart to giver you some idea of the underlying trend at the top area.

The Jan28-Feb 5th accumulation cycle, mark up and then the large stage 3 top with a negative divegrence through March, but look at the depth of the current leading negative, this is another reason I think the F_E_D minutes around Wednesday or after the typical first knee jerk on Thursday  will likely make for some great short entries that come to us on our terms rather than chasing them.

HAVE A GREAT WEEK